How Much to Put Down on a Used Car

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Updated on Monday, July 29, 2019

what to look for when buying a used car

A brand-new car might sound appealing, but may not always be the best financial option. That’s where used cars can come in. Used cars can be much more cost-efficient than new cars because they are just that: used, not new. And while you may not be the first person to own the car, you’ll likely find that an older model, say a 3- to 5-year-old car, can still offer high-quality tech and safety options that you’d find from something that’s brand new. Another good reason for a used car? You may get a chance to own a car that you normally wouldn’t be able to afford if you were buying it new.

Plus, used cars are great values for customers. Since a car’s depreciation usually happens within the first year, that means it has likely already taken place with used cars. In most cases, a new car can lose more than 20% of its value as soon as it leaves the lot. And nowadays, many modern cars can run for well beyond 100,000 miles, sometimes even longer.

The car-buying process for purchasing a used car is similar to the process for buying a new car, but you may wonder how much you should put down on a used car since it will be more affordable. Let’s take a closer look at how much to put down on a used car (and how it might compare with new cars) below.

What is a down payment on a used car?

When you buy or lease a car (both new and used), you’ll likely need to put money down first to help show the lender or dealer you’re financially committed. A down payment also serves other functions as well; it helps determine how much you’ll pay each month and what your interest rate on an auto loan might be (if applicable).

The math works out like this: The larger your car down payment, the better the interest rate and the lower the monthly payments will be on that vehicle.

So just how much should you put down? The average down payment on a new car is around 20-30%, which is more than used cars. The reason is because the depreciation in new cars happens in the first year, so you’ll likely need to put down more to help offset that hit.

Used cars on the other hand, don’t need as much of a down payment. In fact,most down payments for a used car range anywhere from 10-20% with a current average of about 11% of the car’s selling price, according to Ronald Montoya, a consumer advice editor at Edmunds, the car-buying site.

How to calculate how much you should put down on a used car?

Knowing how much you can afford to put down on a used car is pretty crucial to your finances. That’s why it’s important to only take on a car you can afford. Take a hard look at your finances to help determine how much you’re able to pay each month and how much you can put down. One way to go about this is by using online tools, such as MagnifyMoney’s auto affordability calculator. Here, you can plug in your how much you’d like your monthly payment to be and how much you’re willing to put down. Once you put in that information, you can get an estimate of how much you can afford on a car at its estimated value. Auto loan calculators can also help determine your estimated monthly payments on a new car loan if you choose to go that route, which is discussed in more detail later on.

Putting more down on a used car can help save you in the long run as it can help lower your monthly payment and provide a better interest rate. If you can’t put down the typical 10-20% of the car’s value, it might be wise to keep shopping around for a less expensive vehicle. You may also want to inquire with your lender about getting a possible lower interest rate loan.

What does ‘low down payment,’ ‘no down payment’ or ‘zero down payment,’ mean?

If you’ve been shopping around for a car, whether used or new, there’s a good chance you’ve heard the terms “low down payment,” “no down payment” or “zero down payment.” But what do they mean and how do they differ from one another? Let’s break each term down to get a better idea of what these down payment options mean and how they might work (or not work) for you.

What does low down payment mean?

A low down payment is a certain amount of money you put down to help reduce the money you’re borrowing. In years prior, anything less than 20% was considered a low down payment. Today, the average down payment for a used car is 10.9%. Anything below that may be considered on the low side, but usually a down payment within 1-5% range is typically a low down payment.

Pros of low down payment

  • Since you’re putting something down (even if it’s on the low side), you may get a lower monthly payment or interest rate than if you didn’t put anything down at all
  • Possibly shorten the term of your loan than if you didn’t put anything down
  • Shows the lender you are committed to the purchase

Cons of low down payment

  • It may only be a low down payment, but you still have to come up with the cash
  • You may not be putting down enough money to get the best monthly payment or interest rate

What does no down payment or zero down payment mean?

Zero or no down payment means you do not put any money down on the used car you’re buying. Unlike with a low down payment, you won’t have to put any money forward but you’ll have higher payments to worry about.

Pros of no down payment or zero down payment:

  • There is no down payment to come up with
  • Keeps more money in your pocket

Cons of no down payment or zero down payment:

  • Since you’re not putting anything down at all, you’ll likely have a higher monthly payment
  • Possible higher annual percentage rate (APR)
  • You may invest in something that is out of your price range because it was enticing without a down payment
  • Usually only offered to those with a credit score of 700 or higher
  • Your loan can go upside down, which means you’ll owe more on your car than what it is worth

Where do you find low or no down payment used cars?

Unfortunately, there’s no one-stop shop to find low or no down payment used cars. You’ll likely have to do a little digging on your own. You can start by going online to search for dealerships in your area and possible lenders to work with for an auto loan that offers the features you are looking for. Once you find a dealership or lender you’d like to work with, you’ll then be able to contact them directly to apply and determine a proper financing plan for your individual needs.

Each finance plan will vary depending on the lender and the car. One thing to remember: Interest rates are usually higher with used cars because they are riskier for lenders to invest in. Because older cars can break down and owners sometimes decide to stop paying for a broken car, the lender considers this a reason for borrowers to potentially default on their loan. Also note, any car over seven years old can be even harder to get a loan on.

Depending on the lender, you may have the option to apply for a low or no down payment directly on your application or you may discuss this once you are approved for the loan.

Credit history plays a significant role in buying any car, especially a new one. However, when it comes to used cars, you’ll likely only need a good to normal score.

For those who have poor credit, some consider a buy here, pay here dealership. These dealerships can possibly help finance your car when you might not be able to do it otherwise but be cautious, says Ronald Montoya. An option like this may be more costly and is not usually recommended. These dealers tend to sell older cars for much more than they are worth, with too high interest rates. And while you’ll be able to build up your credit if you choose to do business with this type of dealership, you should know that they don’t always report to the credit agencies. That means, you can be making all your payments on time without your credit score improving. If your credit is bad and you don’t have a lot of extra money to spend, you may want to work on raising your score first.

How do you finance a used vehicle?

Now that you have decided on getting a used car, you may be wondering how you’ll be able to finance it. If you’re like many and don’t have extra cash stored away to help buy your car in full, you may need some financial help.

Once you have figured out how much you want to spend on a used car, located the right vehicle for you, figured out what kind of down payment you can provide, it’s time to shop for lenders. An auto loan can help finance your ride by offering you a way to pay for the car with monthly payments. You’ll want to shop around for different lenders to find one that can offer you the best annual percentage rate (APR), which is determined by your credit history and the price of the car you’re looking to purchase. Car loan terms can vary depending on the lender and your credit, but tend to range from around 5 to 6 years. However, a 60-month loan term is ideal because you’ll have five years to finance your car rather than six, which is usually more feasible for most people. And since it’s only five years, you likely won’t grow tired of your car in that amount of time, as opposed to if you had the car for a longer period. Keep in mind, the loan term will depend on how old your car is; with an older car, you may want to try to get a shorter term.

And terms that are longer? These usually come with a higher monthly payment. When you find a potential lender, you’ll need to apply for an auto loan, which can be done online. Once you provide information on your income, employment, and the car you’re interested in, the lender will notify you whether or not you are approved.

Leasing a used car may also be an option. With a lease, the lender will determine your monthly payments by looking at what the car is selling for compared with its overall value. Interest rates on leasing used cars can be higher than with new cars but the terms (which vary with each individual) are usually the same as with new cars. Plus, at the end of your lease you have the option of purchasing the used car (just like with a new one) if you so choose.

The bottom line

Buying a car can be a financial strain. However, used cars can be a cheaper option while still providing you with some decent wheels. In order to get the best bang for your buck, you’ll likely need to put money down on a used car. Putting money down is a good way to save money because it will lower your monthly payment. If you’re looking to save more on your monthly payments, it might be a good idea to put more down if your finances permit. It’s important to only do what you can afford and to take a good look at your finances before making any final decisions.