A down payment on cars refers to the initial sum of money applied to a purchase being financed by the purchaser. When making a large purchase, many buyers will pay some of that cost upfront in the form of a down payment in order to reduce the amount of money to be financed.
As a general rule, aim for no less than 20% down, particularly for new cars — and no less than 10% down for used cars — so that you don't end up paying too much in interest and financing costs. Benefits of making a down payment can include a lower monthly payment and less interest paid over the life of the loan.
The vehicle's price determines how much cash you should put down
| Vehicle Price | 15% Down | 25% Down |
|---|---|---|
| $8,000 | $1,200 | $2,000 |
| $10,000 | $1,500 | $2,500 |
| $12,000 | $1,800 | $3,000 |
| $14,000 | $2,100 | $3,500 |
The down payment often covers a meaningful percentage of the total purchase price (such as 20%). You pay off the remainder of the loan over time with regular installment payments unless you pay the loan off early with a large payment or by refinancing.
The value of a new car declines about 20% in just the first year. Each year after that, there's even more depreciation. A down payment lower than 20% might put you "upside down" on your auto loan, meaning you'll owe more on your loan than the car is worth.
5 Things Not to Say When You're Buying a Car
Your auto loan will likely affect your credit report and your credit score. ... Because a portion of your credit score is derived from “credit mix,” getting a car loan may help your credit profile if you don't already have an installment loan.
Other Industry Credit Scores
TransUnion offers CreditVision, which is tailored for auto lenders, financing companies, and dealers. The score ranges from 300 to 850 and helps predict the likelihood of 60-day delinquency within the first 24 months of a new auto loan.
It's based on average credit, no money down, and financing for five years. If you change any of those variables your payment will change. So, for example, if you're looking at a $20,000 car, the payments will be roughly $400 a month. A $30,000 car, roughly $600 a month.
$10,000 Car Loan. Calculate the Monthly Payment.
| Monthly Payment | $236.00 |
|---|---|
| Total Interest Paid | $1,327.91 |
| Total Paid | $11,327.91 |
Down payment (also called a deposit in British English), is an initial up-front partial payment for the purchase of expensive items/services such as a car or a house. It is usually paid in cash or equivalent at the time of finalizing the transaction.
In a Nutshell
Some car dealerships will let you make a down payment with a credit card, while others only accept traditional forms of payment. If your auto dealership or seller accepts credit cards, consider the pros and cons before handing over your plastic.
Having a decent down payment on a house can reduce how much you need to borrow and the interest you'll pay on the mortgage. It can also potentially qualify you for a lower interest rate. ... But in general, mortgage lenders don't allow the use of personal loan funds for a down payment.
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