Your car’s down payment affects your loan amount and monthly payment and can even change what auto loan terms you qualify for. How much of a down payment do you need to buy a car? The Guides Auto team will help you understand your choices and find the best auto loan rates.
Putting down $5,000 as a down payment for a car may seem like a lot of money. However, when it comes to financing a major purchase like a vehicle, the down payment amount can significantly impact the loan terms and your total cost. In this article, we’ll break down whether $5,000 is a good down payment for a car purchase.
How Down Payments Affect Car Loans
In general a higher down payment on a car leads to
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Lower monthly payments – Since you’re borrowing less money, your monthly loan payments will be smaller. This improves cash flow.
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Less interest: If your principal loan amount is lower, you pay less interest over the life of the loan.
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Faster loan repayment—If you put down more money, you’ll pay off the loan balance faster.
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Improved loan terms – A substantial down payment may help you qualify for lower interest rates from lenders.
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Better chances of getting approved—a bigger down payment shows that you’re a serious buyer, which makes it more likely that you’ll get approved.
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Lower loan-to-value ratio: This number shows how much you borrowed compared to how much the car is worth. A higher down payment produces a better ratio.
How Much Should You Put Down on a Car?
Experts typically recommend putting down 15-20% of the vehicle’s purchase price if possible. While this may be over $5,000 for many cars, any down payment is better than none.
For example, on a $20000 car, a 20% down payment would be $4000. Even putting down 10% ($2,000) makes a difference.
If the recommended 15-20% down payment range isn’t feasible for you, contribute as much as you comfortably can while preserving emergency savings. Don’t overextend yourself.
When Is $5,000 a Good Down Payment?
Assuming you have a $5,000 budget for the down payment, here are two scenarios where it can be a solid amount:
1. Buying an Affordable Used Car
For an economical used car priced around $15,000, $5,000 represents 33% of the total cost. This substantial down payment will significantly reduce your monthly payments, interest costs, and loan term.
2. Buying a Lower-Cost New Car
While many new cars are pricey, some compact models start under $20,000. Putting $5,000 down on a $18,000 new car is just over 25% of the purchase price, making it a healthy down payment.
In both cases above, a $5,000 down payment puts you in a favorable position for the auto loan. You’ll borrow less, pay less in interest, and own the car sooner.
When Might $5,000 Be Too Low of a Down Payment?
On higher-priced vehicles, a $5,000 down payment won’t have as big of an impact since it represents a smaller percentage of the overall cost.
Here are two situations where a larger down payment than $5,000 may be better:
1. Buying a Luxury Car
If you’re purchasing a $60,000 luxury car, $5,000 is under 10% of the total price. This smaller down payment means you’ll need to finance more, resulting in hefty monthly payments, more interest fees, and potentially less ideal loan terms.
2. Buying an SUV or Truck
With pickup trucks and SUVs ranging from $30,000 to $50,000+, a $5,000 down payment equates to 10-15% of the cost. While not insignificant, a larger down payment percentage is recommended.
In these cases, if possible, consider saving a higher down payment amount to get the benefits of improved loan terms and lower interest rates.
Tips for a $5,000 Down Payment
If you plan to put $5,000 down on a car purchase, keep these tips in mind:
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Shop for vehicles where $5,000 represents 15-20% of the price – This down payment percentage is ideal.
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Get pre-approved financing – This gives you bargaining power at the dealership when arranging your loan.
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Compare interest rates – Having a pre-approval makes it easier to compare and negotiate rates.
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Pay sales tax upfront – Don’t finance this amount, or you’ll accrue interest on the taxes.
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Consider a shorter loan term – With $5,000 down, a 36 or 48-month loan can work well.
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Make extra principal payments – This will help you pay the loan off faster and save on interest.
The Bottom Line
While the recommended down payment is 15-20% of a car’s purchase price, $5,000 can be a suitable amount depending on the type of vehicle and its overall cost. On an affordable used or new car where it represents 20% or more, a $5,000 down payment puts you in a solid financial position. On more expensive vehicles, a higher down payment is ideal if possible.
By analyzing your budget, the car price, loan terms, and your goals, you can determine if $5,000 is a reasonable amount to put down. With favorable financing, a $5,000 down payment gives you a healthy head start on your auto loan.
How Much To Put Down on a Car
As a rule of thumb, it’s good to put at least 20% down on a new vehicle. Historically, this has been the down payment size lenders prefer to see. It will also get you the best interest rates.
You don’t have to put down as much money on a used car as you might think would be necessary. 20% of the purchase price is a good down payment in this case. The difference between down payment amounts for new and used cars comes from depreciation. New cars depreciate quickly within the first year, so lenders prefer more substantial down payments for them.
However, 20% down can be a significant amount of money. According to Kelley Blue Book, the average new car sold for $48,681 in November 2022. A 20% down payment for a car at that price would be $9,736.
If you don’t have 20%, put down whatever you can afford without eliminating your emergency savings. You can even get auto loans with no down payment, but the interest rates might not be the best. Some lenders might need a certain amount of down payment, like 12% or 9%, so if you only have a smaller amount available, you might not be able to get some auto loans.
Consider a Trade-In Vehicle
If your car purchase includes a trade-in with a positive value, you can use the trade-in value as a down payment toward the purchase price of the next vehicle. But that only works if you own the trade-in car outright or owe less on the loan than the car’s value. If you owe more than the car is worth, you have negative equity in the vehicle and won’t be able to use it for a down payment.
People Who Make Down Payments and Think They Got a Deal
FAQ
How much should you put down on a car?
A down payment between 10 to 20 percent of the vehicle price is the general recommendation. But if you can afford a larger down payment, you can save even more money on interest payments over the life of the loan. By dropping the amount financed, you save some even before you start negotiating the car price.
How much down payment do you need to buy a car?
Many individuals struggle to save the suggested down payment due to rising vehicle prices. As of the third quarter of 202024, the average price of a new car was $47.542, which meant a $9.508 down payment was needed. Meanwhile, the price of used vehicles exceeded $27,177, making a 15% down payment of approximately $4,077.
How much should you put down on a car loan?
The 20/4/10 rule says you should put down at least 20%, and that you should choose an auto loan with a term of four years or less. Also, your total transportation costs (car payment, insurance, gas, etc. ) shouldn’t eat more than 10% of your monthly income. If you can’t make a 20% down payment, you’re not alone.
Should you buy a car with a lower down payment?
Many people do buy cars with lower down payments. Some simply don’t have enough money saved to put down the recommended amount, especially as car prices have climbed. If you bought a new car in early 2024, the average price was $47,000, which means your down payment would be $9,400. For used cars, the average price surpassed $25,000, so 10% down would be $2,500.
How do you calculate a 10% down payment for a car?
To calculate a 10% down payment for a car, you can use this formula: 0. 1 x the vehicle’s total sale price = down payment amount. For example, for a $25,000 car, the down payment would be $2,500.
Can a 10% down payment prevent a car loan from starting off?
A 10% down payment on a used car may be sufficient in preventing your loan from starting off ‘underwater’. When applying for an auto loan, borrowers must show proof of who they are and how much money they make, among other things. Let’s say you buy a used car that costs $30,000 and have no trade-in.
Is 5k good to put down on a car?
Yeah, $5000 is a decent amount to put down. $5000 down can get you anything from an old Corolla to a brand new Ferrari, it just depends on how good your credit is, what your income is, what kind of payments your budget can support, and what you’re willing to pay.
What is a realistic down payment for a car?
How much should my car down payment be? 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 required down payment for a $5000 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 a good down payment for a $20,000 car?
A down payment between 10 to 20 percent of the vehicle price is the general recommendation.