It’s good practice to make a down payment of at least 20% on a new car and 10% for used. A larger down payment can also help you qualify for a better interest rate.
But how much a down payment should be for a car isn’t black and white. If you can’t afford 10% or 20%, the best down payment is the one you can afford. Key takeaways
Putting money down when purchasing a new or used car is a smart financial move. A down payment reduces the amount you need to finance, lowers your monthly payments, and saves you money on interest charges over the life of the loan. But what is the lowest down payment you can put on a car? Here’s what you need to know.
Why Put Money Down on a Car?
Putting down as much money as possible when buying a car has several advantages
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Lower Monthly Payments: A bigger down payment means you’ll need to borrow less money. This reduces your monthly loan payments.
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Lower Interest Costs: With a smaller loan amount, you’ll pay less interest over the life of the loan. Even a few percentage points can add up to thousands of dollars in savings.
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Improved Loan Approval Odds: Lenders view borrowers who make down payments as less risky. A down payment on a car makes it more likely you’ll get approved, even if you have less-than-perfect credit.
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More Equity: With a down payment, your loan balance starts lower relative to the car’s value. This gives you equity in the vehicle right away and helps prevent your loan from becoming “upside down.”
What is the 20/4/10 Rule?
Financial experts often recommend following the “20/4/10” rule when financing a car:
- Put down at least 20% of the purchase price
- Finance for no more than 4 years
- Keep total monthly vehicle costs at or below 10% of your gross income
While putting down 20% is ideal, it’s not always realistic. Use the 20/4/10 rule as a guideline, not necessarily a hard-and-fast rule.
What is the Lowest Down Payment on a Car?
There is no universal minimum down payment required by lenders. Here are some general guidelines on the lowest down payment when financing a car:
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New Cars: Try to put down at least 10-20% if possible. However, some lenders may approve loans with less or even no money down for buyers with excellent credit.
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Used Cars: You can usually get approved with 5-10% down or less. Again, strong credit scores give you the most leeway.
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Bad Credit: Expect to put down 10-20% or more if you have poor credit. Lenders view these buyers as high-risk, so a sizable down payment is often required for approval.
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Leases: Most leasing companies require little or no money down, outside of initial fees. For example, $1,500-$2,000 at signing is common.
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Buy Here Pay Here (BHPH): Down payments are flexible at BHPH lots, which provide in-house financing to buyers with poor credit. You may need to put 10% or more down.
The Risks of a Low (or No) Down Payment
A low down payment may increase your chances of getting approved and lower your monthly payments. But there are some potential downsides to be aware of:
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Higher Interest Rates: Lenders may offer higher rates to buyers with little or no money down, since they take on more risk. An extra 1-3% in APR can cost thousands in interest.
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Upside Down Loan: Owning less equity in your vehicle makes it easier to end up with a loan balance higher than the car’s value. This makes the car difficult to sell or trade-in.
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Higher Payment-to-Income (PTI) Ratio: A lower down payment increases your monthly payments relative to your income. A PTI over 15% makes lenders less likely to approve your loan.
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Larger Required Down Payments Later: When you go to purchase your next car, lenders may require you to put more money down if you originally put little or none down.
Tips for Boosting Your Down Payment
If you’re having trouble saving enough for a sufficient down payment, here are some options to consider:
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Save up income tax refunds, bonuses, cash gifts, or other unexpected sources of money.
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Sell unwanted household items, vehicles, or other valuables you no longer need.
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See if friends or family members are willing to gift or loan you money for the down payment.
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Consider taking out a personal loan to use specifically for the down payment. Compare rates across multiple lenders.
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Lower your monthly expenses temporarily so you can direct more cash towards down payment savings each month.
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Ask the dealer about manufacturer rebates that can be applied toward your down payment.
The Bottom Line
While zero or low down payments are possible when buying a car, it’s smarter financially to put down as much as you can reasonably afford. Aim for at least 10% down on a used car, and ideally 20% or more on a new car. With poor credit, you may need to put down 20% or more to get approved. Consider all the pros and cons before deciding on the lowest down payment for your situation.
Insider info from the author
“If your down payment is small or if you’re skipping it altogether, think seriously about gap insurance. Gap insurance covers the difference if your car is totalled and you owe more on the loan than the car’s value. I’ve seen too many people have to pay out of pocket to pay off loans on totalled cars. Remember, your insurance will only cover the current value of your car, not the remaining balance on your loan. Gap insurance is usually under $10 a month, and you can cancel it once you’ve paid enough on your loan to avoid being upside down.” — Carol Pope, Senior staff writer and licensed car insurance agent
A 20% down payment isn’t always realistic
The average price for a new car was $49,750 in December 2024, according to Kelley Blue Book. This would mean a 20% down payment of around $9,950. But what car-buyers actually paid was less. In the fourth quarter of 2024, Edmunds reported that the average down payment on a new car was $6,856. That would be a down payment of just under 14%.
Get A Luxury Car With Bad Credit And 0 Money Down Payment!
FAQ
Is $500 enough for a downpayment on a car?
There is no specific minimum down payment for a car. It depends on the car you’re buying, the deal you’re getting and your financial situation. As a general rule, you should try to make at least 20% down on new cars and 10% on used cars.
What is the minimum downpayment for a car?
As a general rule, you will have to pay a minimum of 10% of the car value as a down payment. Some lenders/banks offer car loans up to 90% of the on-road price.
Can I get a car with a $1000 down payment?
Every car shopper has a different financial situation, so it’s difficult to calculate an exact average down payment on a car with no credit. However, subprime lenders typically require a down payment of 10% on a car loan, though some are willing to accept as little as $1,000.
How low of a down payment can you put on a car?
To get the best rate, it’s recommended to put at least 20% down for a new car and 10% down for a used car. There is no set formula, however: The average down payment on a new car in early 2024 was just over 14%.
What is the average down payment on a car?
The average down payment on a vehicle typically runs between 10% and 20% of the purchase price. Some suggest aiming for 10% down for a used car and 20% down for a new one. However, while 20% used to be much more typical, the average numbers have decreased over the last decade. Of course, the number that matters most is what you can afford.
What is a good down payment for a new car?
However, the recommended down payment is 10 percent for a used car and 20 percent for a new car. For a brand-new car, a 20 percent down payment will usually put enough equity into the vehicle to cover the quick depreciation that occurs in the first few months of ownership. That way, the loan amount will not exceed the value of the vehicle.
How much is a down payment on a car in 2024?
In early 2024, the average price of a new car was $47,000, meaning a 20% down payment would be $9,400. For used cars, the average price surpassed $25,000, so 10% down would be $2,500. These down payment amounts can include cash, the value of a trade-in or both.
Should you pay a 20 percent down payment on a car?
A high down payment of 20 percent or more can help protect you from that loss of value by making sure you have more equity in the car than what you owe. However, just because you can pay more cash upfront doesn’t mean you should sign off on a vehicle that you cannot truly afford.
Do you need a down payment for a used car?
Make sure your monthly payments, insurance and fuel costs are within your monthly budget. A used car, on the other hand, requires a less steep down payment. Because the value of a used vehicle has already undergone most of its depreciation, your down payment should be a minimum of 10 percent.
Can you put a 10% down payment on a car?
For example, if the dealer offers $3,000 for your current vehicle, you could use all of that and cover a 10% down payment. Or if you had already saved an additional $3,000 and wanted to lower your monthly payment, you could combine the amounts and put 20% or $6,000 down. Does My Credit Score Impact Down Payments?