I’m a Car Dealer: 4 Times You Should Never Pay More Than $1,000 in Down Payment

If you’re planning to buy a car, you probably need a down payment. It’s typically recommended to have a sizable down payment before buying , but that isn’t always the case.

“I strongly recommend to people that they should always try to put the most down payment they can on any type of loan,” said Mark Beneke, owner of Westland Auto Sales in Fresno, California. “The long-term savings and breathing room provided by doing so is priceless.”

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If you can pay more than $1,000 in down payment, you probably should. However, everyone doesn’t have the money to cover a standard car down payment.

New cars aren’t cheap. As of June 2024, the average price of a new car was $48,644, according to Kelley Blue Book.

Used cars are notably cheaper but still pricey. As of August 2024, the average listing price of used vehicles was $25,415, according to Cox Automotive.

Generally speaking, a typical down payment for a car is between 10%-20%, according to Equifax. A down payment for a new car is typically closer to 20%, while a used car is usually around 10%.

If you do the math, that makes the average down payment on a new car $9,728.80. Much less, but still more than $1,000, the average down payment on a used car is $2,542.

Generally speaking, he said it’s rare that making a small down payment is beneficial. However, Beneke said if you find yourself in one of the following four situations, you shouldn’t pay more than $1,000 in down payment .

Money mistakes the super wealthy never make - that you might be doing now.

You Have Limited Savings

“If you are tight on cash and will be left with little to no available funds, it might be wise to limit your down payment to only $1,000 or less,” he said.

For example, experts generally recommend putting three to six months’ of living expenses aside in an emergency fund. If you don’t currently have an emergency fund — or the one you have isn’t properly funded — it could make sense to put any extra money you have toward that, instead paying more in a down payment.

The trade-off of higher monthly payments could be worth it to enjoy the financial security of having more money in savings.

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You Have Other High-Interest Debts

“If you have other debt that has a much higher interest rate than the auto loan you are applying for, you should consider paying down the debt with the available cash you have for your down payment,” he said.

For example, in 2024, a new 72-month vehicle loan has an average APR of 6.86%, according to Experian. In comparison, the average credit card APR was 21.51% in May 2024, according to the date from the Federal Reserve Bank of St. Louis.

A lower down payment will likely cause you to have a higher monthly payment, but putting the money toward a higher interest loan will save you money in the long term.

You’re Presented With Special Financing Offers

“There are occasions when dealerships will have special financing deals that offer reduced down payments with no interest rates,” he said. “If this is the case, the down payment will not reduce the interest paid on it, which means no benefit other than reducing your payment amount.”

If this happens, you got lucky, so make the most of it.

“It’s better to pocket that extra down and use it toward something else,” he said.

Instead of spending the money frivolously, consider putting it in savings or using it to pay down debt. Special financing offers don’t come along every day, so take advantage of the chance to make a responsible financial move.

You Have a Better Investment Opportunity

“If you have an investment opportunity that is close to guaranteed, keeping your down payment to only $1,000 and using the rest toward your investment could yield much bigger returns,” he said.

Sure, you will probably have a larger monthly car payment in the short term, but it could offer lucrative long term returns.

Ultimately, it’s best to take your own financial situation into account when determining the size of a down payment to make on a car. No two people have the same exact circumstances, so make the decision that’s best for you.

This article originally appeared on GOBankingRates.com : I’m a Car Dealer: 4 Times You Should Never Pay More Than $1,000 in Down Payment