Overview

Almost 90% of new car buys and more than half of all used car buyers use financing (AKA an auto loan) to fund their purchase.

Although financing a car is a great way to get into the latest and greatest models at an affordable price, there are a few drawbacks. One of the largest drawbacks to getting an auto loan is a down payment.

We will dive deep into down payments, why they exist, and creative ways you can save up for a down payment on your next car.


What is a Down Payment on an Auto Loan?

Understanding how a down payment works with auto loans is easier than you think. A down payment is money that you provide upfront to your lender, prior to the loan being issued.

All funds from the down payment are put towards the loan principal/purchase A man holds money next to a piggy bank in blueprice of the vehicle. Providing a down payment shows a lender or car dealership that you have a “vested” interest in repaying your auto loan back.

A down payment on an auto loan is also designed to aid with depreciation, as a new car will lose significant value the moment it is driven off of the dealership lot.

Thankfully, you can provide a down payment in 3 ways.

The first is with bringing cash to your local dealership.

Second, you can use your older car as a “trade-in” to help offset the cost of a down payment.

Lastly, you can implement a combination of cash and a trade in. Dealerships love trade-ins because they get to get rid of a new car and bring another car on the lot they can resell.

If you have a healthy credit score, you should be able to get away with a down payment of roughly 10% or less. For consumers with less than perfect credit, you may be required to provide a larger down payment, depending on the dealership and lender.

Although a down payment can be a burden for many consumers, it has a purpose. First and foremost, a down payment makes it so that you are not immediately “underwater” on your auto loan when you drive off the lot.

Also, providing a down payment is a great way to lower the amount you pay. The less money you have to borrow, the less interest you will have to repay.


Ways to Save for a Down Payment

The days of no down payments on auto loans are mostly gone. Coming up with a $3,000 down payment for a $30,000 car is not an easy feat for most of us.

However, with some planning and smart savings, you can save up for the down payment you need.

We’ve gone ahead and outlined some easy ways to save up for your auto loan down payment:

Sell Your Old Car

Although we mentioned trading in your old car to the dealership as a credit towards your down payment, you can get more money by selling the car yourself.

When the dealership takes a trade-in, there is a good chance they will offer 20-30% less than a normal buyer. This is obviously because the car will need to be prepped for sale and sold for a profit.

If you have a car that can be sold, list it on websites such as Craigslist, OfferUp, and Facebook Marketplace. These free resources have millions of online buyers searching for cars just like yours.

The websites and apps listed above also do not charge to sell your car. Avoid websites like AutoTrader that charge money to list your car. Often times, these websites have much less traffic than their competitors we mentioned.

To prepare your car for sale, here are a few steps you can take

  • Get the car cleaned and vacuumed. You can find car washes in your area that charge roughly $5-7 for a complete wash and vacuum. A clean car sells faster than a dirty one!
  • Take detailed images of the car to put online. I’ve always loved taking photographs at around 5:00-6:00 PM, as the lighting helps to “hide” any cosmetic defects. Take multiple photos of the exterior, along with images of the interior, engine, and trunk.
  • Be sure to cover your license plate with a rag or towel. The photos could be seen by thousands of people, and a lot of information can be found out about somebody by searching their license plate online.

Once you upload the images, write a descriptive advertisement. To get top dollar, you’ll need a top tier ad.

Check out these examples I created below:

“For sale is my 1999 Honda Accord. The car runs and drives amazing with no issues! Body and paint are in great shape. I always maintained the car on time. New tires all around. 128K miles.”

“For sale is my 2002 Chevrolet Suburban. The car runs and drives perfectly without any issues. I just had the transmission replaced 2,000 miles ago. The leather interior is also clean and in very good shape. The car has 145k miles but runs like new!”

Notice these ads do not go above and beyond by including an essay on the car and its life history. A short and simple 3-4 sentence paragraph should cover the main points.

When selling your car online, you might also get fake phone calls or texts that sound like they are real people, when they are not. They will usually ask you for a VIN number or the car’s license plate over the phone. Do NOT provide them with that information unless they see the car in person first.

Another common scam to avoid when selling your car is from people contacting you asking you to take a PayPal payment or a bank check without seeing the car in person first. Be vigilant about who you give your information to.

Taking the time to list and sell your old car could get you $500 or more than what the dealership would have offered you through a trade in! That extra money can go a long way when it comes to a down payment on an auto loan.

Sell Things on eBay and Craigslist

You’re going to need cold hard cash for your down payment, and selling An old phone is sold on eBayonline is a great way to get some. Websites like eBay and Craigslist bring buyers and sellers together. If you have never sold anything online before, using these websites will not be too much trouble.

The first step to selling items online is finding out what you want to sell. First, look around your own home! Is there anything that you haven’t used in over 3 months that you could live without?

The extra bookshelf sitting in your garage? What about those children’s toys that have been sitting in the attic? For large items like tables, chairs etc., Craigslist is the way to go.

Selling on eBay takes a little bit more work than selling on Craigslist. When you list an item on eBay, you are required to have a PayPal account to accept payment. PayPal is a separate company that processes almost 99% of transactions done on eBay.

Once a buyer pays you for an item with Paypal, the funds will be in your PayPal account, which you can have transferred to your bank.

Selling items on eBay and Craigslist does take time. You will need to photograph your items, write a description for each one, and meet up with buyers or mail them their item.

Selling online is perfect if you have a part-time job as well since it can provide additional income. If you can sell 4 or 5 big ticket items, you might be well on your way to a down payment.

Automate Your Savings

Are you somebody that constantly forgets things? You’re not alone! That’s why we recommend setting up an automatic savings plan to help you save for your down payment.

An automatic savings plan is a plan that automatically deducts a certain amount of money from your bank account each month and places it in another account.

What’s great about automatic savings is that it only takes a few moments to set up. Not only does it save you money but it can also save you a lot of time. See how much you can put aside comfortably on a monthly basis.

If possible, aim for $100-$200 per month if you are saving for a down payment. You can open an account though companies like Vanguard that will invest your money in index funds that provide a safe and secure investment.

Slash Unneeded Expenses

If this sounds broad, that’s because it is. I had always considered myself a good saver until I sat down and found out how much money I had been A man hands out money as he cancels subscriptions to save moneyspending on random items!

The first thing to go should be your cable package. A basic cable package could be costing you $60 a month or more in expenses.

Cut the cable box and switch to Netflix and Hulu. They both feature a large number of movies and shows with each costing $8-$10 per month.

Do you have other subscriptions to websites or services you don’t even remember? Apps like Truebill will go through your banking statements to find any active subscriptions, with the option to cancel.

Let’s also talk about habits. Are you one to enjoy a $5 drink at Starbucks each and every morning? $5 per day amounts to over $1,800 per year spent on drinks. Invest in a coffee maker or even a Keurig with a reusable coffee pod to save money.

Garage Sale

When was the last time you actually looked at that painting that’s been sitting in your garage for 5 years?

A garage sale is a great way to earn quick cash while also helping you declutter your home. Spend a weekend going through your home and finding items that have not been used in 1 year or more.

You can post free ads online on websites like Facebook and Craigslist to attract more buyers. Holding a garage sale is a great way to save money for a down payment.

Become a Pet Sitter

Apps and websites like Rover and Wag offer dog watching and walking services. People love their pets and are willing to pay to know that their beloved animal is in good hands.

With Rover, you watch dogs for a period of a few hours to sometimes days. In order to become a dog watcher, you will need to send Rover images of yourself and of your home to ensure safety.

All pets are insured through the Rover app as well.

Drive Around

If you aren’t familiar, ride-sharing apps like Uber and Lyft have really begun to take over. Although you do need a “safe” 4 door car to qualify, you can earn a lot of money driving around town.

Simply sign up through the Uber or Lyft app and take your car in for a free safety inspection. Once the car is cleared, you are ready to start earning! Uber also issues their own supplementary insurance to cover you as a driver.

Rent Out Rooms

If you live in a home or an apartment with an extra room or space, you could be letting dollars get past you. Airbnb is a newer app that allows people to rent out the extra space in their homes.

It could be a room, a couch, or the entire home. You are able to set your own prices and choose whichever tenants you want. Some rooms are able to fetch a price of $100 per night for a small family.

If you are the type of person that is ok with living with others, consider getting a housemate. Getting a housemate is a big decision, so you should be sure you are ready to proceed before pulling the trigger.

An extra tenant could help to cover a large amount of your rent or mortgage payment. You can list your room for rent on Craigslist or Facebook Marketplace to find tenants.

Of course, you should go through all the standard loops as well, like performing a background check and pulling a potential tenants credit too see if they are able to pay rent.

Rent Your Car

Have an extra car sitting in your driveway that your family rarely uses? You could easily rent that car out for some extra cash on the side!

Websites and apps like Turo allow car owners to rent out their cars to other drivers for a short period of time.

These companies do offer some insurance coverage benefits, but its best to call your insurance provider to be certain.

If you own a truck, you can also offer to rent that out. Many consumers will need a truck to move furniture, transport large goods, or move across town.

Although you can list your truck for rent on Turo, an app called GoShare allows users to rent a truck and helper. If you have some free time on your hands, offer your truck and help on GoShare.

Smart Grocery Shopping

If you are like most consumers, you walk down the grocery store isles with no clear list of items you need at hand.

Before you head off to your grocery store, create a list of items you will need. Keeping a list is a great way to stay on track and ensure you are not overspending on unnecessary snacks and treats.

This also gives you time to search for coupons online and in the mail that you can redeem in store.

If you are looking to purchase meats, fruits, and veggies, ethnic markets are your best friend. Ethnic markets have cheaper prices on these products since they do not rely on a middleman to supply them.

The downfall to these markets is that typical “American” products (like Ritz crackers) are more expensive than big box grocery stores.

For basic staple foods, like pasta, oatmeal, dried beans, and sauces, a dollar store is your best friend!

The dollar store often carries non-name brand items that come in much larger sizes than what is available at your local grocery store.

Although it is advised to avoid spices, meats, and canned goods from the dollar store, you can find plenty of items to fill you up on the cheap!

DIY Projects

Expert helps can cost a lot of money. If you have some basic tools lying around the house and a small amount of home improvement skill, you can do many of the necessary repairs you would normally pay an expert to do.

For instance, is your toilet constantly leaking water? Instead of shelling out $300 for a plumber to come in and rebuild your toilet, buy the parts you need from Home Depot and tackle the project yourself.

You can even find helpful videos on Youtube by simply searching your make or model and including the repair you are trying to do. That extra $300 can go a long way when it comes to a down payment for a new car.


Final Note

All in all, it can be hard to come up with the money needed for a down payment. Although the tasks outlined above do take some time investment, you will be able to get into the seat of a brand new car by the end of it.

If you are looking to buy a new car but are in need of financing, CrediReady can help. Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations.

Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!