Tips for Making a Down Payment on Your Car Loan

Car prices are soaring, and with the average car payment for new vehicles at $735 a month and $523 for used vehicles, many people are turning to auto loans to finance their vehicles. According to Experian, this trend is prevalent in the current market.

One key factor that can affect the terms of your auto loan is the down payment you make. A down payment is a percentage of the total cost of the vehicle that you pay upfront. Making a substantial down payment can lead to benefits such as lower interest rates, reduced monthly payments, and a shorter loan duration.

Traditionally, experts recommended a down payment of at least 20% for new cars and 10% for used cars to secure a good rate. However, the average down payment on a new car in the first quarter of 2024 was just over 14%, signaling a shift in this mindset.

While there is no universal formula for the ideal down payment amount, putting down more can increase your chances of approval and secure better terms. It can also lead to positive equity in your vehicle, which is crucial as cars can depreciate up to 20% in their first year.

Some borrowers opt for no money down car loans, but this may result in higher monthly payments and interest rates. In certain situations, dealerships may offer no-interest loans with no down payment to attract buyers, but this could lead to higher monthly payments.

If you’re considering using a credit card for a down payment, be aware that interest rates on credit cards are typically higher than auto loans. Some dealerships may accept credit card payments for down payments, but they may have limits and additional fees.

Overall, the more you can put down as a down payment, the better off you’ll be financially. It’s essential to weigh your options and consider factors like interest rates, loan terms, and your financial situation before making a decision on your down payment amount.