How Much Should a Car Down Payment Be?

Seller and buyer

Whether you lease or buy, you’ll need to save for a down payment, but how much should a car down payment be? It really depends on your personal circumstances, but a larger down payment is usually better if you want lower monthly payments and a higher chance of approval.

What is a Down Payment?

Depending on whether you lease or buy, your monthly payments cover either the amount of value lost over ownership or the entire value of the car. A down payment on a car is money you put down right at the start of the contract to help convince lenders to provide loans. If you’re trading in a car, it’s common to use the value of your old vehicle as a down payment for the new one.

How Much to Save for a Down Payment on a Car

The truth is that you can buy or lease a car with no down payment if you look hard enough, but that’s going to mean missing out on the best vehicles and loan packages. That’s why conventional wisdom tells drivers that a car down payment should be 20% of the car’s value. That might not seem attainable, but there’s a wide range of reasons why you should save before you buy.

Why Save for a Car Down Payment?

Even if you can’t hit 20%, you should save as much as possible, and here are just a few reasons why.

  • Lower Interest Rate: A large down payment shows lenders you’re a low-risk borrower, and you’ll be borrowing less overall. As such, you can likely expect better interest rates.
  • Higher Chance of Approval: A down payment can also convince lenders that you’ll be able to pay back those monthly payments, so saving more tends to mean a higher chance of approval.
  • Lower Monthly Payments: Paying more upfront in the form of a car down payment means paying less over the length of the loan.

If you’re struggling to raise the down payment necessary to buy a car, you might want to think about leasing instead of buying — since you aren’t paying for the entire value of the car, you don’t need to provide such a large down payment.

Learn More With Xpress Cash

Whether you’re choosing between new vs. used cars, wondering how much a car down payment should be, or just want to know the basics of auto financing, contact Xpress Cash or visit one of our locations in Idaho, Michigan, and Wisconsin.