Skip to content
ScoreSense
  • Available Features
    • Credit Scores & Reports
    • Credit Insights
    • Credit Monitoring
    • Identity Theft Monitoring
    • Credit Tools
    • Mobile App
  • Blog
  • In The News
  • Credit Journeys
    • College
    • Military
    • Home Buying
  • Contact
  • FAQs
  • Reviews
  •   Sign In
  • Get My Scores
Main Menu
  • Credit Education
    • Credit Basics
      • Credit Bureaus
      • Types of Credit
    • Credit Scores
      • Credit Score Factors
      • Credit Score Tips
    • Credit Reports
      • Negative Credit Items
      • Credit Report Errors
      • Credit Report Disputes
    • Credit Monitoring
      • Signs of Credit Fraud
      • Credit Fraud Recovery
      • Credit Security Tactics
    • Credit Repair
      • Credit Repair Scams
    • Build Credit
      • Establish Credit for Teens & Students
    • News & Trends
  • Fraud
    • Identity Protection
    • ID Theft
      • Child ID Theft
      • Tax ID Theft
      • Medical ID Theft
    • ID Theft Recovery
    • Data Breaches
    • News & Trends
  • Personal Finance
    • Loans
      • Home Loans
      • Auto Loans
      • Student Loans
      • Personal Loans
      • Business Loans
    • Budgeting
    • Saving
    • Debt
    • Banking
    • Investing
      • 401K & IRAs
      • Stocks & Mutual Funds
    • Taxes
    • Life Events
      • Marriage
      • Parenthood
      • Retirement
      • Divorce
      • Death
      • Bankruptcy
      • Job Loss
      • Natural Disaster
    • News & Trends
  • Credit Cards
    • Interest Rates
    • Denied Credit
    • Card Types
    • Manage Balance
    • News & Trends
  • Credit Tools
    • Credit
      • Monitoring & Alerts
      • Credit Scores & Reports
      • Credit Insights
      • Credit Specialists
      • Score Simulators
    • Identity Theft Insurance
    • Identity Theft Monitoring
    • Sex Offender Monitoring
  • COVID-19
Search

CreditSense > Personal Finance > Loans > Auto Loans > How Much of a Down Payment Should You Make on a Car?

How Much of a Down Payment Should You Make on a Car?

Picture of ScoreSense

ScoreSense

  • December 2, 2020

It’s not always easy to make a substantial down payment on a car, but there can be good reasons to do it even if you don’t have to. New cars depreciate fast and a substantial down payment can protect you from owing more than your car is worth. It can also help you get approved for a loan or help you get better terms on a loan, and your monthly payments may be lower. 

Many experts advise making a down payment of 20% on a new car and 10% on a used car. If you are not able to make a down payment of this size, there are steps you can take to protect yourself from some of the potential adverse consequences. 

The Advantages of a Down Payment

Many people see a down payment as an obstacle to buying a car. If your credit is good or a dealer is eager to close a deal you may have a chance to get a car loan with no down payment or a small down payment. Some buyers will see that as a great opportunity and grab it. That’s not always a wise decision. 

Consider the advantages of making a down payment: 

  • A down payment can help you get approved for a loan even if your credit isn’t great. 
  • A down payment may persuade lenders to offer better terms. 
  • A down payment may lower your monthly payments. 
  • A down payment may qualify you for special incentives. Read the agreement carefully to be sure of what you’re getting! 

New cars depreciate rapidly, losing over 20% of their value in the first year of ownership. A down payment can prevent you from going “underwater” – owing more than your car is worth – on your car loan. 

Going underwater on your car loan can have several undesirable consequences: 

  • If you want to sell your car you may have to add money to pay off the loan. 
  • You may not be able to refinance your car loan. 
  • If your car is stolen or totaled in an accident, insurance will pay only the value of the vehicle. You’ll still be liable for the balance of the loan. 

Depreciation is the primary reason why experts recommend a 20% down payment on a new car. Since the expected depreciation in the first year of ownership is 20%, a down payment of that size will protect you from being underwater on your loan. 

The recommended down payment on a used car is 10%. That’s because depreciation is greatest in the first year of a car’s life and slows down as the car ages. 

If you are looking for a car loan with fair or poor credit, you will want to save as much as possible for a down payment. A larger down payment will lower your monthly payment, may get you a better interest rate, and may make the difference between approval or disapproval. 

What if I Can’t Make a 20% Down Payment?

There are strong reasons for making a 20% down payment on a new car or a 10% down payment on a used car. If you can’t make a down payment that large there are things you can do to protect yourself and gain some of the advantages of making a down payment: 

  • Make as large a down payment as you can. 20% may be the ideal down payment on a new car, but if you can’t make that, making as large a down payment as you can manage may gain some of the advantages. 
  • Wait to buy a car. If you have a vehicle and are looking to replace it, holding on to it a little longer could give you a chance to save for a larger down payment. 
  • Buy a cheaper car. Whatever amount you have saved for a down payment will be a larger percentage of the value of a cheaper car. 
  • Purchase gap insurance. If your car is stolen or destroyed, gap insurance will cover the difference between its value and your loan balance. 
  • Get new-car-replacement coverage. This insurance will replace your car with a new car just like your old one. You can expect a higher insurance bill, but in a worst-case scenario, you’d be protected against losses. 

Remember that if you have a vehicle already, selling it or trading it in may cover most or all of an ideal down payment. 

The Bottom Line

Making a large down payment on your car loan may not be convenient, but it’s often a smart thing to do, even if you qualify for a low-down payment or zero down payment loan.

Making a large down payment can get you better loan terms, lower your monthly payment, and protect you from the adverse consequences of going underwater on your loan.

Even if it’s not possible to make the recommended down payment on a car loan, understanding the advantages of a down payment can help you to plan a strategy to make the largest possible down payment and minimize the potential impact of not having a large enough down payment.

Smart Moves

Get your credit scores and reports from all three bureaus instantly.

Take Action

Shield your credit and finances with up to $1 million identity theft insurance*.

Get Protected

Find out how your score could change if you pay down a credit card or miss a mortgage payment.

Explore Tools

RELATED

How to Defer Your Mortgage During the Coronavirus Pandemic

Will Losing My Job Because of the Coronavirus Hurt My Credit Score?

How to Tighten Your Budget During the Coronavirus Lockdown

What Should I Do If My Information Is Part of a Data Breach?

Tax Season is High Risk

Why Are My 3 Credit Scores Different?

6 Ways to Spend Less This Holiday Season

What is a Write-off and How is it Different From a Charge-off

You are more than just 1 credit score.
Get your credit scores and reports from all three bureaus instantly.
Get My Scores

What's Your Credit Score?

Get Your credit scores & reports from all 3 bureaus, Instantly!**
Get my scores

Sign Up for Our Credit Newsletter

ScoreSense

  • Have an Account? Sign In
  • 1-800-972-7204
  • Mon-Fri: 8AM to 8PM CT
    Sat: 8AM to 5PM CT
    Sun: Noon to 6PM CT
  • customercare@scoresense.com
  • 3400 N Central Expy Ste #110-298
    Richardson, TX 75080

Company

Contact Us
Terms and Conditions
Privacy Policy
OTL*ScoreSense

 

Facebook Youtube

Features

Credit Scores & Reports
Credit Insights
Credit Monitoring
Identity Theft Monitoring
Credit Tools

Resources

Learn About Credit
What is a Good Credit Score?
Credit Score Range

Mobile Apps

© 2001-2025 One Technologies, LLC. All rights reserved.

ScoreSense® is a trademark of One Technologies, LLC.

Do not sell/share my information |

*Identity Theft Insurance underwritten by insurance company subsidiaries or affiliates of American International Group, Inc. The description herein is a summary and intended for informational purposes only and does not include all terms, conditions, and exclusions of the policies described. Please refer to the actual policies for terms, conditions, and exclusions of coverage. Coverage may not be available in all jurisdictions.

**After verification of your identity, your scores are available for secure online delivery in seconds.

 

Scroll to Top