What is a Down Payment?
A down payment is a portion of a loan that is paid to the dealer up front. This is usually a set amount or a certain percentage of the vehicle cost. When you're talking about auto loans, a standard down payment can vary between 0% and 20%, depending on your credit score and other factors, such as dealer or lender requirements.
Why is a Down Payment Important?
A down payment is important because it shows the dealer and the lender that you are willing to make an initial payment, and it also reduces the amount of money you borrow. The less you borrow, the less you're charged in interest payments over the life of your loan.
A significant down payment can also influence things like your loan term and the interest rate you qualify for.
How Do Down Payments on a Car Work?
A down payment on a car loan works by giving the dealer or seller the first payment up front to show that you are serious about the loan. This amount is subtracted from the total amount of the initial loan, and then you borrow the rest.
Your credit situation can be one of the biggest factors determining how much you're required to use as a down payment. If you have good credit, there are typically programs designed to help reduce the amount you have to put down to make buying a certain vehicle more attractive.
With bad credit, on the other hand, you may be required to put down around 10%, or $1,000, whichever is less. However, the amount you put down is ultimately up to the dealership to set the minimum. You can put down more than required, though, and save money over time.
Small vs. Large Vehicle Down Payment: Which is Better?
When it comes to how big your down payment should be, it's typically wiser to use the largest down payment you can. It's usually recommended to put down around 20% on a car loan, especially on new cars. This can help reduce the size of your loan and save you money over time.
There are a few factors that should determine how much you put down on an auto loan down payment. Here's a look at what can impact your decision:
- Financial situation: Your financial situation should have a say in how much you put down on a car loan. You should strive to put the biggest down payment you can without straining your finances or eating into your emergency fund.
- Vehicle price: The more expensive the vehicle, the more you will want to put down to reduce the chances of negative equity and give you the chance to borrow less.
- Loan terms: Using a shorter loan term may make it easier to secure a smaller down payment. It may also increase your chances of getting a lower interest rate.
- Loan-to-value ratio: An LTV is a ratio that compares a loan amount to the vehicle's value. The lower the LTV, the less chance of negative equity. Putting more money down can lower your LTV.
- Credit Score: Your credit score is a big determining factor in how much you have to put down. If you have good credit, you may be able to use a smaller down payment and still see favorable loan terms. However, if you have poor credit, a larger down payment is typically required, depending on the lender you're using.
- Incentives: When you finance a vehicle, typically with good credit, a particular lender may offer incentives that can offset your down payment, such as a zero-down financing offer, a cash rebate, or a deferred payment deal.
When push comes to shove, saving yourself money by using the largest down payment you can is a good idea.
Average Down Payment Amounts
Other than common percentages down, there are no set or average down payment amounts. The average down payment amount varies by many factors. This can include loan amount, financing requirements, lender requirements, and vehicle type, as well as, to a lesser degree, credit score. According to Edmunds, in Q3 of 2025, the average down payment for a new car was $6,020. For a used vehicle, the average down payment amount was $3,976.
If you're purchasing a used car, you're likely to need less money down. Additionally, if you're getting a subprime auto loan, you may not need as much of a down payment. The average down payment amount for many of the dealers in our network is traditionally around 13%, which is on par with the average rates so far in 2025. Your rates could vary.
Car Down Payment Example
Your loan can really change depending on the down payment you make. Making a significant down payment can reduce the size of your loan, save you money on interest charges, and help you pay off your loan sooner.
Here's a look at how your loan may change, depending on the amount of down payment you use.
Let's imagine you're buying a $32,000 vehicle. If you receive an interest rate of 5% and financing for 60 months (five years). Here's a look at a few down payment examples.
- 10% down: $3,200
- Monthly payments: $544
- Total amount of interest: $3,809
- Total loan cost: $32,609
Here's the same loan with a larger down payment:
- 20% down: $6,400
- Monthly payments: $483
- Total amount of interest: $3,386
- Total loan cost: $28,986
As you can see, the more you put down, the better all your terms become. With only 10% down, interest is still making you pay more than the initial vehicle cost. You pay around $60 more a month and nearly $500 more in interest compared to putting 20% down.
To really make the biggest impact, you should take on the shortest loan possible and make the largest down payment you can. You can see how different down payment amounts may impact your loan payment by using our payment estimator.
FAQs
Why do lenders require down payments?
Lenders require a down payment on auto loans because it shows good faith that you will continue to make payments. Studies have shown that people are more apt to continue to make their payments if they have already invested in an asset like a car by making a down payment.
Additionally, a down payment can mitigate some of the risk for the lender in case of loan default. A down payment also shows a lender that you have some creditworthiness.
What is a good down payment on a car?
A good down payment for a car is typically around 20%, though you may be required to put down more or less depending on your lender and your credit situation. To really make it worth your while, you should invest no less than 10% of the total vehicle cost into your down payment.
This means that if you're looking at a $30,000 car, you need at least $3,000 down. However, if you're in a bad credit situation, some bad credit lenders only require around $1,000 down. This is good for your wallet in the short term, but it means paying more down the road.
What's The Average Down Payment Amount?
The average down payment amount varies by loan amount, financing requirements, lender, and vehicle type, among other factors. According to Edmunds, in Q3 of 2025, the average down payment for a new car was $6,020. For a used vehicle, the average down payment amount was $3,976.
Do dealerships need a down payment?
Yes, a dealership will need a down payment for a vehicle purchase. When you make a down payment, that money goes directly to the dealership for the vehicle as your initial good-faith payment. Then, the dealer works with a lender to gather the remainder of the money, which you then repay to the lender over time with interest.
Does your down payment affect your interest rate?
A down payment can impact your interest rate in several ways. If you make a large enough down payment, a lender may perceive less risk and allow for lower interest rates. However, only making a small down payment could lead to getting a higher interest rate. A down payment is only a small part of what determines your interest rate, along with your loan and your credit score, which is the biggest deciding factor.
Does the down payment go to the seller?
The down payment does go to the seller when you're financing a vehicle. It is considered your first initial payment, and the rest of the money is then negotiated with the lender.
Can I use my trade-in as a down payment?
You can use the equity in a vehicle as all or part of your down payment. A down payment doesn't have to be cash alone, and if you don't have negative equity, any value in your car can be put toward the initial payment on a new one. If you owe more on your current loan than the car is worth, you won't have any equity to use, so be sure you're in a good position to trade in your vehicle. If you don't have a loan, any value the car has can be used toward your next loan.
