Why should you put a down payment on a car?

What is the purpose of putting a down payment on a vehicle? If your car is totaled, wouldn't you lose the money you had put down?

Answer
“Most people put a down payment on a car to owe less money on their loan or get better terms and conditions. A higher down payment offsets depreciation and helps to prevent a big gap in what you owe vs. the actual cash value of a vehicle (original price minus depreciation).
You aren’t losing money with a down payment as it’s money you’d still have to pay, and you’d owe interest on it.
If your car is totaled, insurance companies pay the actual cash value of the vehicle. In an ideal situation, this total would be less than your loan and you would get to keep whatever cash was left over. However, you often can owe more on your loan than the vehicle is worth.
This would be where gap insurance can help. Gap insurance would pay the difference between your loan balance and the actual cash value and zero out your loan.
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Emily Maracle
Answered on Apr 30, 2021
Emily Maracle is a car insurance specialist living in New York. Originally from the Pacific Northwest, she has a degree in English Literature and a background in customer service. She enjoys cooking, gardening, and living sustainably. In the future, she can't wait to upgrade to a hybrid or electric car.
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