Yes, putting a down payment on a car is generally a smart financial move. It lowers your monthly payments, reduces total interest paid, helps avoid being "upside down" on the loan (owing more than the car is worth), and can secure better loan terms, especially with a 10%–20% down payment.
As long as your payments keep up with the depreciation of your current car, you are better off keeping your money for a down payment. Even if the numbers work out evenly, you are better off with cash, in case of another need coming up.
As a general rule, you should pay 20 percent of the price of the vehicle as a down payment. That's because vehicles lose value, or depreciate, rapidly. If you make a small down payment or no down payment, you can end up owing more on your auto loan than your car or SUV is worth.
Dave Ramsey's core car rules emphasize paying cash, avoiding new cars (unless you're a millionaire), keeping your total vehicle value under half your annual income, and using a strict budget, often suggesting the 20/4/10 rule (20% down, 4-year loan, 10% total car expenses) as a guideline if financing, but preferring no debt at all to avoid depreciating assets trapping you. He stresses buying reliable, used vehicles to prevent debt and build wealth.
The best way to finance a car involves getting preapproved from a bank or credit union before visiting the dealership to compare rates, making a significant down payment (15-20% is ideal), keeping loan terms shorter (around 48-60 months), and negotiating the total car price separately from the financing, allowing you to get a lower interest rate and save money long-term. Leasing or other options like PCP/HP exist, but a direct loan with good credit offers the most equity.
Depreciation. Cars reportedly lose 20% of their value in the first year of ownership and retain just 40% of their original value after five years. Clearly, that is not a good investment. “Your goal should be to buy the least expensive car. Period,” said Orman. “That should steer you to a used car rather than a new car. ...
Rates and terms are subject to change without notice. Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
Options like FHA loans, Freddie Mac's Home Possible, and Fannie Mae's HomeReady programs offer low down payments, grants, closing cost assistance, and more flexible credit and income requirements. If you don't qualify for no-money-down home loans, look for a first-time home buyer program in your area.
Since every financial situation is different, there's no perfect formula for how much you can afford; that said, our short answer is that your new car payment should be no more than 15% of your monthly take-home pay, meaning what you keep after taxes and insurance.
For years, dealerships have been using a tactic called a “four square”—a sheet of paper divided into four boxes where the salesperson will write down your trade value, the purchase price of the vehicle you're buying, your down payment, and your monthly payment.
"I'm Going to Pay Cash!"
If they know you have a specific budget, they also know they won't be able to move you up to a more expensive, profitable model. So if the salesperson asks about financing, just say you're undecided.
Not only does this show lenders how dedicated and serious you are to pay back the loan, investing some of your own cash into this purchase motivates success. You'll really see changes for the financial better in your car loan when you make a really large down payment, about 50%.
Sometimes local non-profit or government organizations can offer you a second mortgage on special terms to replace a down payment. Some federal programs are also available. For eligible servicemembers or family members, Department of Veterans Affairs (VA) loans do not require a down payment.
No, car down payments are not illegal. While false information has spread on social media platforms, the truth is that it's perfectly legal for car dealerships to request a down payment. In fact, it often benefits buyers by reducing their credit burden.
Because of the higher interest rates and risk of going upside down, most experts agree that a 72-month loan isn't ideal. Experts recommend that borrowers take out a shorter loan.
There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
He has blamed politics for what he considers Americans' economic dependence, and has said presidents should do "as little as possible" about the economy. Ramsey supported Donald Trump in the 2024 United States presidential election.