How Much Should You Put Down on a Car?

Put down enough that you are not borrowing the taxes and fees, and enough that the loan balance stays at or below the car's value. For many buyers that lands somewhere between 10% and 20% of the price, but treat that as a common rule of thumb, not a requirement. The right number depends on your rate, your savings, and the car.

What a down payment is

The Consumer Financial Protection Bureau (CFPB) defines a down payment as an initial, upfront payment toward the total cost of the vehicle. It can be cash, the value of a trade-in, or both. Manufacturer cash rebates applied at purchase work the same way: they reduce what you finance.

What it changes

A down payment does three things at once.

1. Lowers the monthly payment, because you borrow less.
2. Lowers the total interest, because interest is charged on a smaller balance.
3. Builds equity from day one, so you are less likely to owe more than the car is worth.

The CFPB puts it simply: the larger the down payment, the lower the total cost of the loan.

Worked example

Example only. An out-the-door total of $32,000 (price plus tax and fees), financed for 60 months at 7% APR.

Figures are rounded. Each $3,000 down takes about $59 off the payment and saves about $564 in interest over five years.

The last column is the one people skip. Suppose the car itself was $29,000 of that $32,000 and is worth $24,000 a year later (an assumption for illustration; real depreciation varies widely by model). The zero-down buyer owes about $2,500 more than the car is worth. The $3,000-down buyer is roughly even. The $6,000-down buyer has about $2,500 of equity.

Run your own figures in the payment calculator.

Why equity matters

Owing more than the car is worth is called negative equity, or being upside down. It causes trouble in two situations:

• The car is totaled or stolen. Your insurer pays what the car was worth, not what you owe. You are responsible for the difference unless you have GAP coverage, which the CFPB describes as an optional product meant to cover that gap.
• You need to sell or trade early. You would have to bring cash to close out the loan or roll the shortfall into the next loan, which the CFPB warns can make the new loan much more expensive.

A real down payment is the cheapest protection against both. More in negative equity and depreciation explained.

A practical way to pick your number

Rather than a percentage, build the number from the bottom up:

1. Cover the non-car costs. Sales tax, title, registration, and dealer fees add nothing to the car's value. If you finance them, you start upside down by that amount. Estimate them with the out-the-door calculator.
2. Add a cushion for early depreciation. New cars typically lose value fastest in the first year or two. Used cars have already taken part of that drop, which is one reason a smaller down payment is less risky on a used car.
3. Check the payment. If the resulting payment is still uncomfortable, the answer is usually a cheaper car, not a longer loan. See how much car you can afford.
4. Check what is left in savings. Keep an emergency fund intact after the down payment.

Your trade-in as a down payment

If you own your current car outright, its trade-in value is your down payment, or part of it. If you still owe on it, what counts is your equity.

Steps before you visit a dealer:

• Get your payoff amount from your current lender. It is not the same as the balance on your statement, because interest accrues daily.
• Get more than one offer for the car. See how to get more for your trade-in and sell or trade in.
• Negotiate the trade-in value and the new car's price as separate numbers.

In many states a trade-in also reduces the amount of the purchase that is subject to sales tax, which makes a trade-in worth more than the same amount in cash. Not every state does this. See sales tax, title, and registration.

When less down makes sense

• A very low promotional APR. If the manufacturer is offering financing at or near 0%, borrowing costs little, and your cash may be more useful elsewhere. You still take on the negative equity risk, so consider GAP coverage from your own insurer.
• Your savings would be wiped out. A thin emergency fund plus a car payment is riskier than a slightly larger loan.
• You have higher-interest debt. Paying down a credit card charging far more than your car loan is usually a better use of cash.
• You are leasing. Large up-front payments on a lease are generally a poor idea, because that money is not returned if the car is totaled or stolen early. See how lease payments are calculated.

When more down makes sense

• Your rate is high. The higher the APR, the more each dollar down saves. This is especially true if your credit is damaged; see buying a car with bad credit.
• You want a shorter term. A larger down payment can make a 48-month payment fit where only a 72-month one did.
• The lender requires it. Some approvals come with a loan-to-value limit, meaning the lender will only finance up to a certain share of the car's value.
• The model depreciates quickly.

Things to watch at the dealership

• "How much are you putting down?" early in the conversation. You do not need to answer until the price is settled. Agree on the out-the-door price first, then decide how to pay for it.
• Down payment and price moving together. If the monthly payment stays the same after you add money down, something else changed. Ask for the amount financed in writing.
• Deferred or split down payments. If a dealer offers to let you pay part of the down payment later, make sure the contract describes it accurately and that you can meet the dates.
• Get a receipt. For any deposit or down payment, get written terms that say whether it is refundable.

Before you sign, confirm that the down payment and trade-in credit on the contract match what you agreed. Our guide to reading a buyer's order shows where those lines are.