3 Things That Determine Your Car Loan Down Payment Requirements

One of the most common questions from my customers is “How much do I have to put down?” It makes perfect sense.  We’ve been conditioned to think that down payment is a condition of buying a vehicle.  How much of this is true and how much is just dealers trying to bring profit? The answer, as with most things, is “It depends”.  There are multiple factors deciding whether you need a down payment and how much it must be.  There’s no simple explanation, but here are few of the influencing factors.

Keep in mind that these are answers to what your down payment you have to make; not necessarily what you want to or should.  Money down can lower your interest rate, increase your trade equity on your next purchase, shorten the term of your loan, and lower your payments. 


The biggest factor in down payment requirement is the credit score of the purchaser.  Those with excellent credit can, in most cases, purchase a vehicle with no money down provided no extenuating circumstances exist.

Loan to Value

The most complicated to explain, loan to value is the amount of money being borrowed in relation to the stated value of the vehicle.  For example: If a vehicle has an invoice of $20,000, and you’re attempting to finance $25,000; you’re asking to finance 125% of the vehicle value. Different banks have various programs regarding the loan to value (LTV).  If yours is high, then money down may be required to bring the LTV back to a reasonable percentage.

Loan Term

With auto loan terms available for as long as 96 months, lenders have had to refine LTV policies for longer-term loans.  As you extend the term of an auto loan, the interest rate goes up and the amount you pay towards principal goes down; resulting in greater negative equity, especially through the first few years.  Since this presents a greater risk to the lender, the a require a better equity situation to start. 

Side Note: A high down payment may be a red flag!

If you don’t have a lot of negative equity coming from a trade, you have good credit, and a dealer is asking you to make a high down payment: There’s a good chance that you’re buying a car for a lot more than it’s worth.  Take a step back and do some research.


Tampa Deal Pros is an auto-buying service in Tampa, FL.  Our blog is dedicated to helping people negotiate the best car deal through a dealership.  If you have a question you’d like us to write about, email ushere.

If you live in Tampa Bay and you’re considering purchasing a new vehicle. Consider us first!