Car Down Payments – How Much Should You Put Down?

Written by Tim Marsh:

Whether you’re looking for a new or used car, the amount of money you’re going to put down on it is an important consideration. Traditionally, the rule of thumb has been that you should put 20% down on your vehicle, but is that still the best advice in today’s economic climate? The fact is that both new and used car prices have increased significantly in the past 10 years and as a result, the average down payment paid has decreased and is now closer to 10% on average.

What’s the Right Amount?Car Down Payments - How Much Should You Put Down

Putting 20% down on a vehicle does make good financial sense, but it’s just not as feasible for many people as it once was. The closer you can get to 20% the better, but it’s probably not a good idea to put that much down if it’s going to wipe out your bank account. After all, aside from the monthly payment on a new or used car, many people don’t consider the cost of insurance, maintenance, and possible repairs down the road, and you need to have enough money to pay for those things as they come up.

The Operating Cost of the Car

All the expenses related to your car is called the total operating cost. To find out this cost, you can use an operating cost calculator like the one found at These calculators will have a database of all the different makes and models, as well as boxes for you to enter the insurance premium and cost of petrol. When you enter this information, an operating cost calculator will break down the average weekly cost and average cost per kilometer. This more accurate cost will give you a better idea of the amount you can afford to put down on your new vehicle.

New Car Depreciation

Because new cars depreciate significantly as soon as you drive them off the lot, an average of 20.5% according to, most people are immediately upside down, owing more than the car is actually worth. This can be a problem when you go to trade in your car, because the buyer will give you what it’s worth, not what you owe. Similarly, if you get in a major accident or your car is stolen, insurance companies will pay out based on how much the car is worth, not how much you owe, so you could be paying out-of-pocket for that difference if your car has been totaled or stolen.

Used vs. New

Buying a new car is usually more desirable than buying used if you can afford it, but purchasing a car that is a few years old makes good financial sense because the first owner has already absorbed the higher depreciation. Although buying used will cost less in depreciation, you should follow the same strategy for when you buy used: put as much down as you can afford. By paying extra up front, you will save on more expensive car-related costs down the road.

Other Options to Protect Car Equity

If you can’t afford to put 15 or 20% down, there a couple things you can do to maintain the equity of the car. First, you may want to consider making a bigger monthly payment. Again, consider the total cost of owning the car and make sure you can afford a larger payment. Paying more per month (even just $15 or $20 more), can make a big difference in financing charges over time. Secondly, you can get gap insurance, which will cover the difference between what you owe on your car and what it’s worth if you total the car.

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