How Much Should I Put Down On a Car Loan In Canada?

Auto loan down payments are an important element of borrowing and something we suggest every borrower use. You can get an auto loan with no money down but it isn’t something we recommend. With that in mind, how much money is an ideal down payment amount?

We asked our auto loan team to outline how down payments can help with a loan application and whether there’s an ideal down payment amount.

This is what they came up with.

Down Payments for Car Loans

A car loan down payment offers several benefits. It reduces the amount of loan you need, can offset initial depreciation on the vehicle, reassures lenders that you’re serious about the loan and can even reduce the length of loan you need.

Some lenders require a down payment while others treat it as optional. Much will depend on your credit score. At Car Nation Canada dealerships, we offer no down payment car financing!

Those that require one want to offset any potential negative equity when you drive away a new car. As the car’s value can drop lower than the amount of the loan, this exposes the lender to risk. The down payment insulates them from that risk.

It’s nothing personal, it’s just business.

Using a down payment on a car insulates the lender from potential loss and shows you’re serious. Both of which can help sway a lending decision in your favour.

While it won’t cause them to lend to you if you cannot afford the loan, all other things being equal, someone with a down payment will be more likely to be approved than someone without.

How Much Should You Put Down on a Car?

How much you should put down on a car is as much as you can afford. A practical minimum is 10-20% of the car’s value.

The actual amount will therefore vary depending on the car you’re buying. You would need to put less money down for a used Ford Taurus than you would a new Lincoln Navigator, which is why we use percentages instead of cash figures.

The more you put down the lower the loan amount, the lower the monthly payment, the lower the amount you’ll pay in interest over the term and perhaps, the shorter the period of the loan.

But you have to balance a large down payment with not exposing yourself to risk by emptying your savings.

We all know that as soon as you empty your savings, something happens in life that requires a significant amount of cash!

If you can put down a decent down payment while leaving yourself enough to cover emergencies, that’s a good down payment to use.

As we said earlier, it is possible to use a no money down auto loan to buy a car but these depend on having a high credit score and can work out expensive. If you can afford to save for a down payment, we thoroughly recommend doing it!

If you're ready for a car loan, we'd love to help with that! simply fill in the form below to get started.