The Myth of the Auto Down Payment

• Author: Bryan Miller
• Posted: 2023-11-30

If you were to go purchase a house in today's housing market, you would likely have to come up with a minimum of $40,000 in cash for a down payment; and that's if the house is on the low end of the price spectrum. There are some purchases that you make in the country that aren't purchases at all. Even most homeowners are still technically renting or leasing their homes for decades until they outright own them. Is the same true with automobiles? There are a lot of people who speak often online about needing to come up with 20 or 30% for an automobile down payment. On its face, this information certainly reads as if it's accurate. After all, cars have inflated in price just like everything else, and they're more expensive now than ever before. However, that doesn't mean you necessarily have to put a down payment on one to drive it off the lot. In fact, it's a myth that you will be required to put a down payment on a car.

How could a myth like this circulate? For two main reasons. One, of course, is the fact that car dealerships buy advertising online, and they definitely want you putting money down. It's not something that most require, depending on your situation, but they would love it if you threw $10,000 or $15,000 down. It's a boon for them. The second reason is that most dealerships will require a down payment, considered a "security," if you have poor or bad credit. Anything higher than a 600, you can get out of there without a down payment, and that's most Americans. Though if you have a credit score around 400, or down in the 300s and rated as "poor," you're going to have to provide a security, and also likely provide proof of employment and maybe even register a card or a bank account on file. It can get complex if you're in the minority of Americans with really bad credit.

If you're in the market for a new car, or even a good used one, then you should know that you don't have to worry too much about putting a down payment on an automobile. You should be worried a little more about your credit. It's likely going to be a lot cheaper for you to pay down some credit cards and wait a month vs. paying thousands of dollars for a down payment. So, you might want to go ahead and get caught up on your cards for a few hundred bucks, watch your credit score climb higher, and then you can get off the lot without having to put anything down on your car.

Most dealerships provide those "$0 down for 12 months" sorts of offers anyway, because they're in business to move automobiles. There is so much competition with cars, including many overseas manufacturers, that they need to move them off the lot in order to stay afloat. So, again, don't worry too much about having to come up with a down payment. Find a dealership that's going to offer you a better deal and use your credit for your benefit.
 

Structuring Your Monthly Payment

Now, just because a down payment isn't going to be necessarily required in all cases, that doesn't at all mean that it's not still a good idea. If you can afford it and it's not going to harm your finances, putting a down payment on an automobile means you're going to have lower monthly payments, and a shorter period to pay off your car. Of course, this isn't a viable option if you don't actually have the money. The good news is that you can definitely haggle in the world of car sales. You can only bid and cross your fingers when it comes to buying a home; though for buying a car, you can get all sorts of different deals by speaking with the agents or owner at the dealership. This doesn't guarantee you some sweetheart deal, but you can easily structure a payment where you're paying a little less per month but the length of your lease extends a year or so longer. This is very common in the industry.

Just be fully aware that when you're going to purchase a car, you don't really need a down payment. Get your credit in order and be ready to work with the people to get a good deal.