How Much Is the Average Down Payment on a Car?

Part of knowing how car loans work requires understanding that down payments represent money you give to the dealership or lender upon signing that reduces the financed price or goes toward paying down the various fees that go with buying a car. Most often, the down payment is a lump sum determined by calculating a percentage of the purchase price. 

Why does a down payment matter?

A down payment on a car loan can assist in the following ways: 

• Mitigates credit risk in the lender’s eyes and may improve approval chances (for those with low credit scores or poor credit history)
• Less interest paid over the life of the loan 
• Potential for a lower interest rate
• Can help lower monthly payments, depending on the loan terms
• Addresses depreciation to hedge against being upside-down on a car 
• Builds immediate equity in the vehicle
  
  

You might see a trade-in listed as a down payment on the finance agreement between you and the lender. In this case, the value of the trade-in, minus any fees or remaining loan amount, represents your down payment. 

Experts vary on the specific down payment percentage they recommend, but most fall between 10% and 20%. In most cases, putting 10% down on used vehicles and twice that on a new vehicle is the official recommendation. However, this conventional wisdom is often more of a lofty guideline than a strict rule of thumb. 

Leases stand as an exception to this rule, based on the agreement between the lessor and lessee. Within the leasing agreement, down payments can reduce monthly payments, depending on what’s due at signing. However, should the insurance company total the car after an accident, any down payment made on that car is now null and void.  

As a borrower, calculating your down payment can seem like a guessing game, but it’s often an essential part of determining what type of vehicle you’re looking for and what you can afford. For instance, you can use your prospective down payment amount to obtain a preapproved car loan. Most lenders want to know how much you can put down, and the amount may allow you to negotiate specific terms. 

The first step in calculating your down payment is running with the experts' 10% and 20% rules. For a car listed at $40,000, that’s $4,000 down if used ( $40,000 x 0.10) and $8,000 down if it just came off the assembly line ( $40,000 x 0.20). With these numbers, somewhere between $4,000 and $8,000 would be acceptable by conventional standards. As car prices fluctuate, so too do the down payments. 

However, calculating the appropriate down payment depends on what you can afford and how you can maximize your down payment to create better terms. If you can pay $4,000 down but want to split that between taxes and titling and the financed amount, you’d be further ahead. If you can only pay $3,000 but maintain a $5,000 emergency savings fund, you might thank yourself one rainy day when that $5,000 helps cover the cost of your monthly car payment. 

Buying a car without a down payment is possible, but it’s often not recommended. The lack of funds for a sizable down payment may signal that you need to spend more time shoring up your emergency fund or saving up for a down payment specifically. The exception to this situation is an instance where you might find a zero-down financing offer. However, you should consider every aspect of this type of deal to ensure it’s right for you, as most require a stellar credit score to qualify. 

What happens if you can’t afford the typical down payment on a car?

If you can’t afford the typical down payment on a car, you might be able to find a no-down-payment car to buy. However, you can find many of these vehicles at no-credit-check-no-proof-of-income car dealerships that often trade down payments for extra interest rate percentage points if you have bad credit. Sometimes, waiting and saving money before rushing into a car purchase with the deck stacked against you is better. 

Of the acceptable forms of down payment for a car, credit cards typically don’t rank toward the top of the list. Indeed, the dealership may charge you a convenience fee and pass on any transaction fees due to putting your car down payment on a credit card. You’d only want to pursue this option if you received a particularly profitable or desirable perk for charging your card, given that you could pay off the balance in due time. For instance, cashback and travel miles can help offset the high charge. 

Making a large down payment can help you in some ways. Ask yourself how you can best benefit from the money you’re considering putting down, whether paying down the financed amount on the car you’re about to purchase or reducing high-interest credit card debt that could save you money. Regardless of your choice, nabbing cash from your emergency fund can put your personal finances at risk. It’s often better to put down less money and pay a few hundred or even thousands of dollars more over the span of your car loan (even with higher interest rates) than rob yourself of emergency savings you may need in a few months (or less).