Car prices are still historically high and most people are financing their vehicle with auto loans. At the start of 2024, car payments averaged $735 a month for new vehicles and $523 for used vehicles, according to Experian.

A down payment is a percentage of a vehicle’s total cost that you pay upfront. Making a down payment can reduce your interest rate, monthly payments and the duration of your loan.

It’ll also start you off with positive equity in your vehicle, which is useful since a car’s value can depreciate as much as 20% in its first year. 

While your credit score plays a significant role in car loans, experts have traditionally advised that a generous down payment will help get you approved and secure a good rate.

“For a long time, there was a school of thought that recommended a down payment of at least 20% of a new car’s purchase price,” said Ed McFadden, senior vice president of communications for the American Financial Services Association. “For used cars, the suggested down payment was 10% of the purchase price.”

That mindset is changing, especially for new cars: In the first quarter of 2024, the average down payment on a new automobile was just over 14%, according to Edmunds.

“It may be that a car buyer puts down less but has savings, high income and a good credit history,” McFadden said.

Capital One offers competitive auto loan rates and superior customer service, ranking highest among mass-market options in J.D. Power’s 2023 Consumer Financing Satisfaction Study. Financing is available to borrowers with credit scores as low as 540 and approval can take as little as 24 hours.

For used cars, many borrowers are putting down more than the recommended 10%: The average for the first quarter of 2024 was a little over 16%.

CarMax Auto Finance is one of our top picks for financing a used car, with an easy application process, a large inventory of vehicles and no minimum credit score requirement to qualify. If you find a better rate within three days of closing your CarMax loan, you can replace your financing at no cost.

There’s no one-size-fits-all answer when it comes to how much of a down payment will get the best rate on your loan.

“Every creditor has proprietary modeling they use for pricing credit and there can be a number of factors,” McFadden said. “So there’s no universal formula.”

Still, the more you can put down, the better. The bigger the down payment, the less money you have to borrow and the less interest you’ll have to pay.

It’s possible to get a car loan with no money down, but it might not have the best terms.

“Your monthly payment would be significantly higher and, since it would have higher risk, it would likely mean a higher interest rate, as well,” said Mark Schirmer, director of industry insights and corporate communications at Cox Automotive.

In some cases, a dealership may offer a no-interest loan with no money down to a particularly desirable buyer.

“Perhaps when car sales are slow — think the economic collapse in 2009 — or conversely, when there is a great deal of competition to sell a particular type of vehicle, you may see a 0% APR advertisement for consumers who have good credit,” McFadden said.

In those cases, the manufacturer is typically paying the interest to get the vehicle sold. That could save you thousands in interest but your monthly payment will still be higher than if you’d made a down payment.

Many car dealerships do accept credit cards for down payments. Interest rates for credit cards are much higher than for auto loans, however, so it only makes sense if you can pay the balance before your bill is due. In addition, the dealer may have a maximum amount they’ll accept on a card and tack on a convenience fee.

If you’re looking to take advantage of a hefty welcome bonus, the Capital One Venture X Rewards card earns 75,000 miles when you spend $4,000 on purchases in the first three months of opening. It also earns 2x miles on all non-bonus purchases.

Be sure to factor in Venture X’s $395 annual fee when deciding if using the card to make a down payment is the right choice for you.

Another option is the Wells Fargo Active Cash® Card, which has a 0% intro APR for 15 months from account opening on purchases and qualifying balance transfers. (After that, it’s a variable APR of 20.24%, 25.24% or 29.99%). New cardholders pay an introductory balance transfer fee of 3% for 120 days from account opening, then up to 5% on future balance transfers

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Ed McFadden, senior vice president of communications for the American Financial Services Association, a trade association for the consumer credit industry. We also spoke with Mark Schirmer, director of industry insights and corporate communications at Cox Automotive, the parent company of Kelley Blue Book.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every auto loan article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of loans. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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