Car loans help make vehicles affordable to buyers of all incomes. Few people have the cash to pay tens of thousands of dollars at once, so loans are used to pay for vehicles over time. But, car buyers should have some money they are ready to contribute up front in the form of a down payment.

One of the questions we are commonly asked about here at Auto Credit Express is how much is needed for a down payment. If you do any sort of research into the subject, you will hear plenty of differing opinions. This is because when it comes to down payments, there is no one-size-fits-all solution. Your ideal down payment will depend on several factors.

A Proper Down Payment

Making a down payment on a vehicle purchase is advisable for just about every car buyer. This is because there are several benefits to putting money down.

Naturally, a down payment reduces the amount you need to borrow. The smaller loan results in smaller monthly payments and lower overall interest charges, allowing you to save money. It can also help you avoid being underwater, and, if you have bad credit, it can also strengthen your application. For these reasons and a few others, most experts agree that, in almost all cases, the bigger your down payment, the better.

You want the cash you provide to help save you money down the road. For new cars, the typical rule of thumb is to provide a 20 percent down payment; although, according to Edmunds, the average down payment on a new car today is closer to 11 or 12 percent. On average, new cars lose around 20 percent of their value in the first year of ownership. A 20 percent down payment helps to offset this initial depreciation drop.

As for used cars, the old adage is that you want to put down at least 10 percent or more of the selling price. So, if the car you are looking at costs $16,000, you will want to have at least $1,600 to put down.

Figuring Out Your Down Payment Amount

The right down payment for you depends on several factors, including your credit, your interest rate, your vehicle choice, depreciation and more. Because you will want to save for one long before heading to a dealership, you can take these steps ahead of time to figure out an appropriate down payment for your situation.

down payment

  • Check Your Credit Reports and Score
    Your credit score, which is determined using the information on your credit reports, largely determines your interest rate. Therefore, you will want to carefully examine your credit situation beforehand. A good tip is to carefully comb through your credit reports and dispute any errors you may come across.
  • Decide What Kind of Car You're in the Market For
    Take a careful look at your budget and vehicle needs to get an idea of what you want to buy. There is an endless amount of research you can do online to help you out. You can also research pricing using websites like Kelley Blue Book or local dealership inventory listings.

At this point, you should have a much better idea of how much of a down payment you should need. And remember, it doesn't need to be strictly cash. You can also apply a trade-in toward your down payment, as well.

The Bottom Line

It works in your favor to have a down payment. But how much of one you will need depends on your situation. If you are looking for a new car, you will probably want to save up around 20 percent, while you may be okay with something closer to 10 percent on a used vehicle.

If you have bad credit, it's in your best interest to have as big of a down payment as possible. Not only will you typically be required to make one, a down payment will help your chances of getting approved and significantly reduce the amount you end up paying in interest charges.

Credit problems can make getting approved for an auto loan more difficult, but Auto Credit Express is here to help. We connect car buyers with credit problems to local dealerships that are special financing experts. They work with a wide range of lenders and know how to help those dealing with unique credit situations.

If you are struggling to get approved because of your credit, it's time to give us a try. Get started by filling out our free and secure car loan request form today.