Car down payment trade-off.

Worked example

You are buying a car with a total of $35,000 (price plus tax and fees) on a 60 month loan at 6%. With nothing down you borrow $35,000: payment $676.65, total interest $5,598.88. With $7,000 down (20%) you borrow $28,000: payment $541.32, interest $4,479.11, so you save $1,119.78 of interest and $135.33 a month. If your $7,000 could instead earn 4% a year and you also invested the $135.33 a month you save, the bigger down payment still finishes ahead by $425.24 after 60 months. If the cash could earn much more than the loan rate, the smaller down payment wins; try a higher savings rate to see it flip.

How it works

Loan = amount minus down payment. Payment = loan x r / (1 - (1 + r)^-n) with r = APR / 12. Total interest = payment x months minus loan. End-of-term difference = (payment saved each month, compounded at the savings rate) minus (extra cash put down, compounded at the savings rate), measured against the smallest down payment. At a 0% savings rate this equals the interest saved. Savings-account interest is treated as pre-tax and certain, which real returns are not.

The FTC advises considering saving for a down payment first because a down payment reduces the amount you need to finance and so lowers total financing costs. Whether paying more up front beats using the cash elsewhere depends on rates you must supply, and keeping an emergency fund may matter more than the interest numbers.

Sources and basis (opened 2026-10-08): Federal Trade Commission, Consumer Advice, “Financing or Leasing a Car”. Statement used: a down payment reduces the amount financed and lowers total financing costs.

Not financial advice. This is a planning estimate from the numbers you type. Taxes, fees, insurance and lender or lessor terms vary; confirm every figure against your contract or written quote.

FAQ

Is a bigger down payment on a car always better?

It always lowers the amount financed and the interest paid at a given rate. Whether it beats keeping the cash depends on what that cash could earn, and on whether you would be left without an emergency fund. The tool shows both views.

How much should I put down on a car?

The calculator does not pick a number for you. Some people use 20% as a rule of thumb; see the 20/4/10 calculator. Compare a few amounts here and weigh them against your own cash and risk.

Does a down payment lower my interest rate?

Not necessarily. Lenders set the rate from your credit and the offer. A down payment lowers the amount the rate applies to. Enter the APR you have actually been quoted.

Should trade-in equity count as a down payment?

Positive equity in a trade-in reduces what you finance, so it works like a down payment. Enter it as part of the down payment. If you owe more than the car is worth, see the negative equity calculator instead.

What if the cash could earn more than the loan costs?

Then the end-of-term difference turns negative, which means the smaller down payment comes out ahead on paper. That ignores risk and tax on the earnings, so treat it as a rough guide.