The Surprising Reason Car Buyers are Putting Down Bigger Down Payments

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Car prices are remaining steady, but car buyers are still paying more.

According to a report by Edmunds, an auto industry information leader, car buyers are nearing a record high for down payments on new vehicles. But they aren’t putting more down to be financially responsible, pay the car off sooner and save on interest.

Instead, buyers are putting more down so that monthly payments on the too-expensive cars can feel a bit more manageable.

Last month, the average down payment on a new car was $3,801. That’s 6.5% more than it was at the same time in 2016 and 15.3% higher than most people were paying five years ago.

Despite putting more down, car buyers with new vehicles are still financing more, have higher monthly payments and are taking longer to pay off the cars.

“Buyers want pricier cars with more bells and whistles, leading to the troubling trend of trading longer loan terms for lower monthly payments,” said Jessica Caldwell, executive director of industry analysis for Edmunds. “But now that interest rates are also on the rise, something has to give.”

But it’s not all bad news.

“In our increasing credit-based culture where consumers are willing to finance everything from cellphones to vacations, more money up front shows car buyers aren’t completely sacrificing practicality in order to get the cars they really want,” Caldwell added.

Those who buy used cars are faring a little better financially.

According to Edmunds, down payments on used car purchases are higher than they were in previous years, but buyers are financing less, signing shorter loan agreements and still have slightly lower monthly payments than they did in 2016.

How to Know if You Can Afford That New Car

Of course, there is room for car buyers to make better financial decisions. has a clear way for you to know if you can afford the car you’ve been dreaming about.

Rather than just looking at how much your monthly car payment will be, suggests looking at the total cost of the vehicle relative to your income.

To help you know if you can afford it, use what experts call the 20-4-10 rule: Only buy if you can put down at least 20% upfront, pay off the loan less than four years with a monthly payment that is less than 10% of your monthly income.

Here’s the example Consumer Affairs used to break down the rule:

“If you purchased a car for $33,754, you would need to make a down payment of $6,750. Financing the balance for four years at 4% would create a monthly payment of $609. To afford the average new car or truck, you would need a monthly gross income of $6,090, or $73,080 a year.”

Of course, if your income is along the lines of the average American, you probably make a bit less than that per year. That’s a sign that you should probably skip the bells and whistles and opt for a less expensive car.

Desiree Stennett is a staff writer at The Penny Hoarder.