If you're shopping for a vehicle, one of the first questions you may ask is: How much of a down payment should I make on a used car?

 

The answer depends on your budget, financial goals, and the type of financing you qualify for. While a down payment isn't always required, making one can offer several advantages when purchasing a used vehicle.

 

In this guide, we'll explain how a used car down payment works, when it's required, and how much you should consider putting down.

A down payment is the amount of money you pay upfront toward the purchase of a vehicle before financing the remaining balance.

 

For example, if you're purchasing a used vehicle for $20,000 and make a $4,000 down payment, you'll finance the remaining $16,000 (plus applicable taxes and fees, depending on how your loan is structured).

 

A larger down payment reduces the amount you need to borrow, which can lower your monthly payments and the total interest paid over the life of the loan.

Not always.

 

Many lenders offer used car financing with little or even no down payment, depending on factors such as:

• Your credit history
• Income and employment stability
• Debt-to-income ratio
• The age and value of the vehicle
• The lender's financing guidelines

If you have strong credit and meet the lender's requirements, you may be approved without a down payment. However, some lenders may require one, particularly for buyers with limited or challenged credit.

There isn't a one-size-fits-all answer, but many financial experts recommend putting down anywhere from 10% to 20% of the vehicle's purchase price if it's comfortably within your budget.

 

For example:

• Vehicle price: $15,000
• 10% down = $1,500
• 20% down = $3,000

Keep in mind that these are guidelines, not requirements. The right down payment is one that helps you manage your monthly payments without putting unnecessary strain on your savings.

Making a larger down payment on a used car can provide several financial advantages.

 

Lower Monthly Payments

Because you're borrowing less money, your monthly loan payments are typically lower.

This can free up room in your monthly budget for insurance, fuel, maintenance, and other vehicle ownership costs.

 

Less Interest Paid Over Time

Interest is charged on the amount you borrow. By financing a smaller amount, you'll generally pay less interest over the life of the loan.

 

Better Loan-to-Value Ratio

A larger down payment reduces the loan-to-value ratio, which can make your financing application more attractive to lenders.

 

In some cases, this may improve the financing options available to you.

Should You Use All Your Savings?

Not necessarily.

 

While making a down payment can be beneficial, it's also important to maintain an emergency fund for unexpected expenses.

 

Owning a vehicle comes with ongoing costs such as insurance, maintenance, fuel, and repairs. Keeping some savings available can help you handle those expenses without relying on credit.

 

The goal is to find a balance between reducing your loan amount and maintaining financial flexibility.

Don't assume financing is out of reach. Many Canadians successfully finance used vehicles without a large upfront payment.

 

At MyLoan, we work with customers in a variety of financial situations, including:

• First-time buyers
• Students
• Newcomers to Canada
• Customers with bad credit
• Customers with no credit history

We partner with a network of banks and lenders to help find financing options that work for your individual circumstances.

 

Even if you don't have money available for a down payment, it's still worth exploring your options.

Yes.

 

If you're trading in your current vehicle and it has positive equity, that value can often be applied as your down payment on your next vehicle.

 

This can reduce the amount you need to finance without requiring additional cash upfront.

Is it better to make a down payment on a used car?

In many cases, yes. A down payment can reduce your monthly payments, lower the amount of interest you pay, and decrease the total amount financed. However, it's important to choose an amount that fits comfortably within your budget.

 

Can I buy a used car with no down payment?

Yes. Depending on your financial situation and lender requirements, it may be possible to finance a used vehicle without a down payment.

 

Does a bigger down payment improve my chances of approval?

It can. A larger down payment reduces the amount being financed and may make your application more attractive to some lenders.

 

Should I wait until I save a larger down payment?

Not always. If you need reliable transportation now, waiting may not be the best option. Speaking with a financing specialist can help you understand what's available based on your current situation.

Whether you have a large down payment, a small one, or no down payment at all, MyLoan is here to help.

 

We work with a wide network of banks and lenders to help Canadians find financing solutions that fit their budgets and credit situations. Our team works with customers who have excellent credit, bad credit, or no established credit history.

 

Not sure where you stand? Start with MyLoan's free online pre-qualification tool. It uses a soft credit check, so you can explore your financing options without affecting your credit score.

 

Once you're pre-qualified, browse our inventory of quality used vehicles and let our team help you find a vehicle and a financing solution, that works for you.