How Much Money Should You Put Down on a Car?

Quick Facts About How Much to Put Down on a Car

• A rule of thumb for down payments on new car loans is 20% of the purchase price, which helps you avoid owing more on the loan than the car is worth. 
• It’s best to put as little money down as possible when leasing a car.
• Down payments for used car loans may be less because the vehicle has already undergone some depreciation, but generally, more money down is better.
• You can use your trade-in for a down payment to avoid handing over out-of-pocket cash.

If you need to buy a new or used car or plan to lease one, you might wonder how much money you need for a down payment.

Most buyers aim to have a down payment of 20% of a new car’s price, while used car shoppers should have at least 10%. In general, you should put down as much as you can without depleting your savings account. Getting a car with zero money down is possible, but loans and leases typically require down payments. With more money down, your monthly payment is lower, and you’re closer to paying off the loan.

Keep reading to learn about the benefits of putting money down on a car, why it’s a loan requirement, and how to use a trade-in as a down payment. We’ll also explain why less is more when putting money down on a car lease, and more.

• How Much Should a Down Payment on a Car Be?
• Benefits of a Down Payment
• What’s a Good Down Payment on a Car?
• What’s the Average Down Payment on a Car?
• Using Your Trade as a Down Payment
• Using Rebates to Boost Down Payment
• Bottom Line of Down Payments

How Much Should a Down Payment on a Car Be?

So, how much should you put down on a car? It depends. When financing a vehicle with a loan, the lender might require you to make a down payment equal to 20% of the sales price for new vehicles or 10% for used models. In general, make as much of a down payment as you can afford. However, never overextend your budget for a car, and remember that other expenses contribute to the cost of owning an automobile. Ensure you have funds available for routine maintenance costs and unexpected repairs.

When leasing a car, you will not get your down payment back at the end of the lease. Therefore, you should put as little money down as possible for a lease.

What Is a Down Payment for a Car?

A down payment is the amount a car buyer pays at the beginning of an auto loan. The sum helps cover a new car’s immediate depreciation and reduces the funds the buyer must borrow to finance the vehicle purchase.

Benefits of a Down Payment

Getting a car with zero money down is possible, but loans and leases typically require down payments. However, making a healthy down payment has several advantages that benefit you throughout the whole term of your loan.

A larger down payment lowers your monthly payment and gets you closer to owning the vehicle outright. Owning the pink slip, or certificate of title for the car, is the most financially secure position to be in with your vehicle.

Is It Better to Put a Large Down Payment on a Car?

In short, you’ll be gaining equity in the vehicle sooner with a larger down payment. If you make a 20% down payment rather than a 5% down payment, you’ve offset more of the car depreciation hit. You’ve also lowered your monthly car payment, and you can probably afford to have a shorter term on your loan. You’ll pay less in interest no matter what rate you negotiate. So, with a loan, the more you put down, the faster you will own your car.

RELATED: Car Payment Guide: Calculating What You Can Afford

Lease Down Payments

When you take out a car loan, you borrow the money to pay off an automobile over time. A lease works more like renting a car from a leasing company. A down payment on a vehicle is somewhat irrelevant to you when you must return or buy the car at the end of the lease. However, the leasing company uses down payments to recover a vehicle’s depreciation during the lease term.

In the case of a lease, automakers typically run lease deals with various monthly payments based on the down payment amount. For example, a well-qualified customer could lease a 2024 Ford Bronco Sport with $3,519 down for a $299 monthly payment for 36 months at the time of this writing. Your payments would increase significantly if the same car manufacturer provided a no-money-down offer. Use our car leasing calculator to help determine what you can afford.

Those are significant monthly savings as a reward for scraping up some cash for a down payment. However, you will never get that money back since you have no equity in the car. The same holds true if the vehicle is wrecked or stolen.

What’s a Good Down Payment for a Car?

It’s common for a down payment on a new car loan to be 20% of the vehicle’s purchase price. For used cars, you might be able to put down 10%. Applying a larger down payment is a way to avoid owing more on the loan than the car is worth. When leasing a vehicle, you should put down only what is required.

You can usually get away with a lower down payment for used car loans than you could on a new car because the used model has already gone through some depreciation. Part of the reason for a down payment on a new vehicle is to offset initial depreciation. That point isn’t as much of an issue with a used car. While lenders might require putting down at least 10% on a used car, a 20% down payment is still a good practice if it fits in your budget.

For leases, dealerships typically predetermine a required initial payment or a cash amount due at signing. There usually isn’t a lot of flexibility on how much money you can put down on a lease. Therefore, it’s a good idea to go with predetermined amounts. It’s generally wise to pay as little upfront as possible while keeping the monthly payment affordable for your income.

What Is the Average Down Payment on a Car?

Many lenders require a 10% down payment on used cars and 20% of a new car’s price. However, if they can afford it, some borrowers put down more and avoid paying interest on that amount over the life of the loan. Lenders often require borrowers with lower credit scores to have higher down payments.

How Much Should You Put Down on a $25,000 Car?

According to Kelley Blue Book, Autotrader’s sister company, today’s average used car listing price is around $25,000. The chart below shows how a bigger down payment reduces the monthly payment and interest costs for an auto loan. This example uses the overall average interest rate for used car loans across all credit profiles in spring 2024, as reported by the credit experts at Experian.

Using Your Trade-In as a Down Payment

Buyers don’t necessarily need to make their entire down payment with cash. There are several acceptable forms of a down payment for a car other than cash, and one of them is to trade in the vehicle you’re already driving. The new car purchase price is lower based on your trade-in value. Trade-in value applies to new and used car loans and new car leases.

To get an idea of the value of your trade-in, check Kelley Blue Book to get an estimate for your specific car. Remember, your dealership trade-in value will always be less than what you can get from a private-party sale. If you’d prefer to get more money for your car than what a dealer will offer you, you can sell it yourself on Autotrader. Otherwise, you can get an Instant Cash Offer with no obligation from dealerships that come to you with offers. That way, you can know right away exactly how much you can add to your down payment with your existing car.

Remember, that little bit of extra cash you get from selling the vehicle yourself isn’t free. You will have to spend time and maybe a little of your own money cleaning and preparing the vehicle before selling it.

Using Rebates to Boost Down Payment

Another cash alternative is to use rebates. Rebates can help get your down payment up to at least 20%. Dealers and automakers often offer rebates when you apply for loans from the financial arm of the brand. You can use rebates to your advantage to either make a smaller out-of-pocket down payment or increase the down payment to lower your monthly loan bill.

Rebate availability suffered for several years due to tight vehicle inventory. Now, with a healthy new car supply, incentives are on the comeback trail. Kelley Blue Book data shows discounts and money back from automakers reached 7% of the average transaction price — $3,383 — in July. New vehicle incentives that month were at the highest point in more than three years. Savvy car shoppers should always look for those offers.

The Bottom Line of Down Payments

An excellent way to get safe and reliable modern transportation without having to squirrel away money for years is to finance a new or used car with an auto loan at a reasonable interest rate. Just be sure to have at least 20% of the purchase price — including any trade or rebate.

On the other hand, a new car lease typically requires less upfront cash and produces lower monthly payments than a loan would for the exact vehicle. The two most significant downsides of leasing are knowing there is no return on your down payment and no car ownership at the end of the term.

Do a little homework before going to the dealership:

• Know the fair market value of the car you have your eye on.
• Consider the value of any rebates or trade-ins.
• Evaluate how much cash you can comfortably afford to put down.

From there, you can ask the dealership for a quote on a lease or loan or seek financing from an outside institution so you can get the keys to your new ride.

Can I Get a Car With No Down Payment?

You might be able to get a car loan with no down payment. But carefully consider the long-term financial impact. Not putting money down will produce higher monthly payments with interest, take longer to pay back the loan, or both. If you owe money on the car and sell it, you will likely owe more than the vehicle is worth. Well-qualified lessees may find leases with zero-down promotions and incentives. Use our monthly payment calculator to know what you can afford when taking out a loan.

Editor’s Note: This article has been updated since its initial publication. Nick Palermo contributed to the report.