According to the convention, the magic car down payment number when applying for an auto loan is 20%. But still, a vast majority of customers are making far smaller down payments. The Edmunds analysis of new-and used-car purchases in the previous year (2019) revealed that the average car loan down payment was 11.7%.
But why make such small car down payments? The explanation is simple – it’s all people can afford. According to Jack Gillis, executive director of public affairs for the Consumer Federation of America, “The main reason why people aren’t putting enough down is that the cost of the vehicle has substantially increased, but people’s income has remained relatively flat. The average car down payment of 11.7% has effectively gone up since 2007 when it was at 9%. Meanwhile, new car costs have increased by 33% in the same time. In simpler words, if you wanted to put 20% down on an average new-vehicle purchase today, you’d have to come up with approximately $7,255.
A solid down payment should achieve three things:
- Reduce your monthly payment
- Get you better interest rates (since you are financing less)
- Offset the initial hit in depreciation
Visit Car Factory for detailed information on the kind of car down payment you’ll need to finance your next car – brand new or leased. You can even head on over to our Miami or Florida outlets where our trained staff will help you get the best deal. Call (786) 406-6234 to book a consultation today!
The Perfect Car Down Payment Plan
The ideal down payment on an auto loan should be an amount you can reasonably save, without draining your emergency savings account. You must keep in mind that your trade-in can also act as your down payment, provided it has enough value. If you take some precautions against depreciation, you can put down less than 20% on a new car.
In case your new car is wrecked beyond repair or stolen in the initial years, then that average down payment won’t provide enough equity to cover the balance of the loan. This is why you would need gap insurance or new-car replacement insurance. It costs a few hundred dollars but can offset any difference between what you owe and what the insurance company gives you, in the event that your car is wrecked or stolen. But it still does not cover you if you’re simply tired of the vehicle and want to trade it in or sell it.
Used cars usually depreciate at a slower rate than new cars. Edmunds data shows that the average used car down payment is about 10.9% of the selling price. This amount should be adequate for a used-car purchase from a private party since the prices are lower and the depreciation is slower.
The following advice applies to the purchase of a new or used car. In case you lease, the advice is simpler – put down as little money as feasible. Ideally, you would pay only the drive-off fees. The ideal down payment is one for which you can reasonably save up without putting a strain on your savings. Unfortunately, only a few people qualify for a zero percent APR, but it is the ideal way to finance a car. In case your credit is poor, a substantial down payment increases your chances of getting approved for a loan.
As a general rule, for every $1,000 you put down, your monthly payment will drop by about $15 to $18. If depreciation would put you at financial risk in the event of an accident, pen down the cost of gap or new-car replacement coverage.
Recommended Read: Tips For Buying A Used Car In Florida