What is a typical down payment for a new car?

I’m planning to buy a new car in the next month and I’m budgeting carefully. I’ve noticed some friends put down 10% of the purchase price, while others recommend 20% to avoid negative equity or high monthly payments. I’m concerned about upfront costs versus long-term loan impacts, especially with rising interest rates. What financial experts and lenders typically consider a standard down payment range for a new car purchase today—specifically both in percentage terms and average dollar amounts? Are there industry norms or dealer-tier recommendations I should know about for sedans versus SUVs?

The typical down payment for a new car generally falls within the range of 10% to 20% of the vehicle’s purchase price. However, several factors influence this amount:

1. Minimum Down Payment Requirements:

   • Zero Down: Some dealers and lenders offer promotions allowing buyers to purchase a new car with no down payment. While possible, this is not recommended as it significantly increases the loan amount, leading to higher monthly payments and a greater risk of negative equity (owing more than the car is worth).
   • 5-10%: Some lenders, especially for buyers with good credit, might accept down payments as low as 5-10% of the purchase price.

2. Recommended Down Payment:

   • 10-20%: This is the most commonly cited range. A down payment of this amount helps:
     • Reduce the total loan amount, lowering monthly payments.
     • Decrease the total interest paid over the life of the loan.
     • Build equity in the vehicle from the start.
     • Lower the risk of negative equity, especially considering rapid depreciation of new cars.
   • 20% or More: Often recommended for buyers seeking lower monthly payments, aiming to avoid negative equity, or those with lower credit scores (who may require a larger down to qualify for a loan). For luxury vehicles, 20% or more is increasingly common to manage higher purchase prices and depreciation rates.

3. Factors Influencing the Down Payment:

   • Credit Score: Buyers with excellent credit may qualify for low or zero down payment offers. Buyers with lower credit scores (subprime) will likely need a larger down payment (sometimes 20% or more) to secure financing.
   • Lender Requirements: Banks, credit unions, and manufacturer financing arms (like Ford Credit, Toyota Financial Services) have their own specific minimum down payment policies, which can vary based on the buyer’s credit profile and the vehicle type.
   • Vehicle Type/Price: Down payment requirements might be higher for more expensive luxury vehicles or trucks/SUVs compared to economy cars.
   • Loan Terms: Longer loan terms (e.g., 72-84 months) might allow for a smaller down payment, but increase the total interest paid and the risk of negative equity. Shorter terms (e.g., 48-60 months) may require a larger down payment.
   • Trade-In Value: The value of a trade-in vehicle applied towards the purchase functions as a form of down payment, reducing the amount of cash needed out-of-pocket.
   • Promotions: Special manufacturer or dealer offers (like “0% APR” or “cashback”) may influence the required or recommended down payment.

4. Financial Advice:

   • While a larger down payment reduces your loan burden, financial experts often advise buyers to avoid using their entire emergency fund for the down payment. Balancing a sufficient down payment with maintaining savings for unexpected expenses is key.

In summary, while a down payment of 10-20% of the new car’s purchase price is the typical and recommended range, the actual amount can vary significantly based on the buyer’s financial situation, creditworthiness, lender terms, vehicle price, and available promotions.