How much should I put down on a used car?
Why the Down Payment Matters
A larger down payment reduces your monthly payment and the total interest you pay. It also helps you avoid being 'upside-down' (owing more than the car is worth) if you need to sell or trade it soon. New cars depreciate fastest in the first few years, but used cars also lose value.
Most lenders prefer at least 10% down for a used car loan, and some require 20% for older vehicles or those with higher mileage. If you have bad credit, a larger down payment can improve your approval odds and interest rate.
- 10% down: minimum for many lenders
- 20% down: recommended to avoid negative equity
- 30%+ down: best for low monthly payments and interest savings
How to Decide
Look at your monthly budget. Aim for a car payment that's no more than 10–15% of your take-home pay. If you can't afford 20% down, consider a cheaper car or save longer.
Also factor in taxes, registration, and insurance, which you'll pay upfront. Some dealers offer 0% down promotions, but these often come with higher interest rates or require excellent credit.
Other Costs to Consider
Your down payment isn't the only upfront cost. You'll also need money for sales tax (which varies by state, typically 4–8%), title and registration fees, and possibly a dealer documentation fee. Budget an extra $500–$1,500 for these.
If you're buying from a private seller, you'll pay sales tax when you register the car, so set that money aside.
Common mistakes
- Putting zero down and financing the entire purchase, which leads to higher payments and immediate negative equity.
- Forgetting to budget for taxes and fees, which can add hundreds or thousands to the upfront cost.
- Assuming a larger down payment always gets you a better interest rate; it helps, but your credit score matters more.
