If I put a large down payment (over 50%) towards a car loan, can I reduce my interest rate and is it smart to even put that much down?
Can you reduce your interest rate? Talk to the lender. Maybe. Probably not. The rate reflects their perception of how much of a risk they're taking with the loan. But if all you're borrowing is $2000, the savings that you might get out of any adjustment to the rate is not going to be all that significant. Sure, it would be nice, but it's not going to be enough to make or break your decision to buy this car. The big savings will be that you're paying interest on a much smaller loan, which means you can reduce your payments and/or pay it off more quickly. REMINDER: NEVER TALK TO AN AUTO DEALER ABOUT FINANCING UNTIL AFTER THE PRICE OF THE CAR HAS BEEN NAILED DOWN -- otherwise they will raise the purchase price to cover the cost of offering you an apparently cheap loan. "Talk to your bank first but shop around a bit as well with other reputable lenders in your area.  Another option, if you're willing to put down ~84% of the purchase price would be to talk to several dealerships BEFORE you set foot on a single lot. Tell them that you are interested in buying a Versa and that you are willing to pay cash but you are not willing to pay more than $10,200. They won't agree (trust me on that) but they will come down from $13,000. Say ""Thanks, I'll call you back."" and call one of the other dealerships on your list and tell them ""I just spoke with this dealership and they are willing to sell me the car for [whatever number they gave you]."" One of two things will happen, either the dealership will come back with a lower price or they will tell you to go buy the car there. Continue this process until you have one dealership left.  I did this with 3 dealerships in 2011 and bought a truck with a $27,000 sticker price for just over $19,000. It took about a week to make all of the calls and I ended up going to a dealership 3 hours away but it was worth it for $8,000." "With that credit rating you should have no trouble getting a rate in that range. I have a similar credit score and my credit union gave me a car loan at 1.59%. No haggling required. In regards to your question, I think you have it backwards. They are more likely to give you a good rate on a high balance than a low one. Think about it from the bank's perspective... ""If I give you a small sale, will you give me a discount?"" This is the question you are asking. Their profit is a factor of how much you borrow and the interest rate. Low rate=less profit, low financing amount = less profit.  The deal you proposed is a lose-lose for them." I had a strange experience buying a new car.  They were offering a deal of 0.9% interest on the loan but only if the loan was above a certain amount.  Below that amount, the interest rate was something like 3%.  Given the amount I was willing to put down, it was cheaper to put less down and get the lower interest rate.  So, once you agree to the purchase price, you need to discuss what finance options they offer.  You might also check in advance with other loan providers (e.g. your bank) to see what offers they have. "The real answer is to talk to the bank. In the case of the last car loan I got, the answer is ""no"". When I asked them about rates, they gave me a printed sheet that listed the loan rates they offered based on how old the car was, period. I forget the exact numbers but it was like: New car: 4%, 1 year old: 4.5%, 2-3 years old 5%, etc.  I suspect that at most banks these days, it's not up to the loan officer to come up with what he considers reasonable terms for a loan based on whatever factors you may bring up and he agrees are relevant. The bank is going to have a set policy, under these conditions, this is the rate, and that's what you get. So if the bank includes the size of the down payment in their calculations, then yes, it will be relevant. If they don't, than it won't. The thing to do would be to ask your bank. If you're only borrowing $2000, and you've managed to save up $11,000, I'd guess you can pay off the $2,000 pretty quickly. So as Keshlam says, the interest rate probably isn't all that important. If you can pay it off in a year, then the difference between 5% and 1% is only $80. If you're buying a $13,000 car, I can't imagine you're going to agonize over $80. BTW I've bought two cars in the last few years with about half the cost in cash and putting the rest on my credit card. (One for me and one for my daughter.) Then I paid off the credit card in a couple of months. Sure, the interest rate on a credit card is much higher than a car loan, but as it was only for a few months, it made very little real difference, and it took zero effort to arrange the loan and gave me total flexibility in the repayment schedule. Credit card companies often offer convenience checks where you pay like 3% or so transaction fee and then 0% interest for a year or more, so it would just cost the 3% up front fee." As others have already pointed out, the bank isn't getting your money upfront - the cash goes to the dealer and the bank will be financing you a much smaller amount. They really don't have any incentive to give you a better interest rate, but it never hurts to ask. The more important (and unasked) question is should you do this? Keeping in mind that a loan with good credit could be in the 1.8% range. Average long-term returns in the market are over 3x that, so by paying upfront you're trading the opportunity for 6%+ returns for the ability to save -2% fees.
Since I have 10k in my account after down-payment, will I get a   good interest rate on the loan? When the bank considers your loan, they will see $70K. Regardless, they will want to see certain amount of savings that would allow you to continue paying your loan in case of an emergency, and $10K might not be enough. I was planning to put down 15%, but I have been told that I should buy   something called PMI to satisfy the rest 5% and if I take that my   interest will be more and sometimes, bank will not go for anybody who   pays less than 20%. Is that true? Yes. After downpayment + closing costs, how much money in the savings   accounts, is the bank looking for to say that I am a good buyer? Depends on the bank, my wild guess would be they're looking for several months' worth of loan payments (you should have ~6 months worth of savings for emergencies, regardless of loans). In the United States a Jumbo Loan is one in which the loan amounts exceeds a set value. For much of the US it is currently $417,000 but it is higher in some areas. It is set by the US government and is adjusted each year.  If you are trying to avoid the Jumbo designation then putting more down makes that possible. Generally the Jumbo loans have a higher rate. My credit union does allow jumbo loans with less than 20% down, but I am not sure if they are in the majority or the minority regarding down payment requirements. Keep in Mind that once the house price goes above Jumbo/0.8 or $521,250 you will be putting down more than 20% to avoid the Jumbo designation. If it's possible in your case to get such a loan, then sure, providing the loan fees aren't in excess of the interest rate difference.  Auto loans don't have the fees mortgages do, but check the specific loan you're looking at - it may have some fees, and they'd need to be lower than the interest rate savings. Car loans can be tricky to refinance, because of the value of a used car being less than that of a new car.  How much better your credit is likely determines how hard this would be to get.  Also, how much down payment you put down.  Cars devalue 20% or so instantly (a used car with 5 miles on it tends to be worth around 80% of a new car's cost), so if you put less than 20% down, you may be underwater - meaning the principal left on the loan exceeds the value of the car (and so you wouldn't be getting a fully secured loan at that point). However, if your loan amount isn't too high relative to the value of the car, it should be possible.  Check out various lenders in advance; also check out non-lender sites for advice.  Edmunds.com has some of this laid out, for example (though they're an industry-based site so they're not truly unbiased). I'd also recommend using this to help you pay off the loan faster.  If you do refinance to a lower rate, consider taking the savings and sending it to the lender - i.e., keeping your payment the same, just lowering the interest charge.  That way you pay it off faster. "Following up on @petebelford's answer: If you can find a less expensive loan, you can refinance the car and reduce the total interest you pay that way. Or, if your loan permits it (not all do; talk to the bank which holds the loan and,/or read the paperwork you didn't look at), you may be able to make additional payments to reduce the principal of the loan, which will reduce the amount and duration of the loan and could significantly reduce the total interest paid ... at the cost of requiring you pay more each month, or pay an additional sum up front. Returning the car is not an option. A new car loses a large portion of its value the moment you drive it off the dealer's lot and it ceases to be a ""new"" car. You can't return it. You can sell it as a recent model used car, but you will lose money on the deal so even if you use that to pay down the loan you will still owe the bank money. Given the pain involved that way, you might as well keep the car and just try to refinance or pay it off. Next time, read and understand all the paperwork before signing.  (If you had decided this was a mistake within 3 days of buying, you might have been able to take advantage of ""cooling down period"" laws to cancel the contract, if such laws exist in your area. A month later is much too late.)" The simple answer is yes - put 20% (or more) down. In the past I have paid PMI and used a combination first and second mortgage to get around it. I recommend avoiding both of those situations. I am much more comfortable now with just a regular mortgage payment. The more equity you have in your home the more options you will have in the future. "For the mortgage, you're confusing cause and effect. Loans like mortgages generally have a very simple principle behind them: at any given time, the interest charged at that time is the product of the amount still owing and the interest rate. So for example on a mortgage of $100,000, at an interest rate of 5%, the interest charged for the first year would be $5,000. If you pay the interest plus another $20,000 after the first year, then in the second year the interest charge would be $4,000. This view is a bit of an over-simplification, but it gets the basic point across. [In practice you would actually make payments through the year so the actual balance that interest is charged on would vary. Different mortgages would also treat compounding slightly differently, e.g. the interest might be added to the mortgage balance daily or monthly.] So, it's natural that the interest charged on a mortgage reduces year-by-year as you pay off some of the mortgage. Mortgages are typically setup to have constant payments over the life of the mortgage (an ""amortisation schedule""), calculated so that by the end of the planned mortgage term, you'll have paid off all of the principal. It's a straightforward effect of the way that interest works in general that these schedules incorporate higher interest payments early on in the mortgage, because that's the time when you owe more money. If you go for a 15-year mortgage, each payment will involve you paying off significantly more principal each time than with a 30-year mortgage for the same balance - because with a 15-year mortgage, you need to hit 0 after 15 years, not 30. So since you pay off the principal faster, you naturally pay less interest even when you just compare the first 15 years. In your case what you're talking about is paying off the mortgage using the 30-year payments for the first 15 years, and then suddenly paying off the remaining principal with a lump sum. But when you do that, overall you're still paying off principal later than if it had been a 15-year mortgage to begin with, so you should be charged more interest, because what you've done is not the same as having a 15-year mortgage. You still will save the rest of the interest on the remaining 15 years of the term, unless there are pre-payment penalties. For the car loan I'm not sure what is happening. Perhaps it's the same situation and you just misunderstood how it was explained. Or maybe it's setup with significant pre-payment penalties so you genuinely don't save anything by paying early." A loan that does not begin with **at least a 20% deposit** and run through a term of **no longer than 48 months** is the world's way of telling you that *you can't afford this vehicle*.  Consumer-driven cars are rapidly depreciating assets. Attenuating the loan to 70 months or longer means that payments will not keep up with normal depreciation, thus trapping the buyer in an upside down loan for the entire term. Any way you look at it, this is a terrible idea. Cars lose value.  They are a disposable item that gets used up.  The more expensive the car, the more value they lose. If you spend $100,000 on a new car, in four years it will be worth less than $50,000.*  That is a lot of money to lose in four years. In addition to the loss of value, you will need to buy insurance, which, for a $100,000 car, is incredible. If your heart is set on this kind of car, you should definitely save up the cash and wait to buy the car.  Do not get a loan.  Here is why: Your plan has you saving $1,300 a month ($16,000 a year) for 6.5 years before you will be able to buy this car.  That is a lot of money for a long range goal.  If you faithfully save this money that long, and at the end of the 6.5 years you still want this car, it is your money to spend as you want.  You will have had a long time to reconsider your course of action, but you will have sacrificed for a long time, and you will have the money to lose.  However, you may find out a year into this process that you are spending too much money saving for this car, and reconsider. If, instead, you take out a loan for this car, then by the time you decide the car was too much of a stretch financially, it will be too late.  You will be upside down on the loan, and it will cost you thousands to sell the car. So go ahead and start saving.  If you haven't given up before you reach your goal, you may find that in 6.5 years when it is time to write that check, you will look back at the sacrifices you have made and decide that you don't want to simply blow that money on a car. Consider a different goal.  If you invest this $1300 a month and achieve 8% growth, you will be a millionaire in 23 years. * You don't need to take my word for it.  Look at the car you are interested in, go to kbb.com, select the 2012 version of the car, and look up the private sale value.  You'll most likely see a price that is about half of what a new one costs. I am going to give advice that is slightly differently based on my own experiences. First, regarding the financing, I have found that the dealers do in fact have access to the best interest rates, but only after negotiating with a better financing offer from a bank. When I bought my current car, the dealer was offering somewhere around 3.3%, which I knew was way above the current industry standard and I knew I had good credit.  So, like I did with my previous car and my wife's car, I went to local and national banks, came back with deals around 2.5 or 2.6%.  When I told the dealer, they were able to offer 2.19%. So it's ok to go with the dealer's financing, just never take them at face value.  Whatever they offer you and no matter how much they insist it's the best deal, never believe it!  They can do better! With my first car, I had little credit history, similar to your situation, and interest rates were much higher then, like 6 - 8%.  The dealer offered me 10%.  I almost walked out the door laughing.  I went to my own bank and they offered me 8%, which was still high, but better than 10%.  Suddenly, the dealer could do 7.5% with a 0.25% discount if I auto-pay through my checking account. Down-payment wise, there is nothing wrong with a 35% down payment.  When I purchased my current car, I put 50% down.  All else being equal, the more cash down, the better off you'll be.  The only issue is to weigh that down payment and interest rate against the cost of other debts you may have.  If you have a 7% student loan and the car loan is only 3%, you're better off paying the minimum on the car and using your cash to pay down your student loan.  Unless your student loan balance is significantly more than the 8k you need to finance (like a 20k or 30k loan). Also remember that a car is a depreciating asset.  I pay off cars as fast as I can.  They are terrible debt to have.  A home can rise in value, offsetting a mortgage.  Your education keeps you employed and employable and will certainly not make you dumber, so that is a win.  But a car?  You pay $15k for a car that will be worth $14k the next day and $10k a year from now.  It's easy to get underwater with a car loan if the down payment is small, interest rate high, and the car loses value quickly. To make sure I answer your questions: Do you guys think it's a good idea to put that much down on the car? If you can afford it and it will not interfere with repayment of much higher interest debts, then yes.  A car loan is a major liability, so if you can minimize the debt, you'll be better off. What interest rate is reasonable based on my credit score? I am not a banker, loan officer, or dealer, so I cannot answer this with much credibility.  But given today's market, 2.5 - 4% seems reasonable. Do you think I'll get approved? Probably, but only one way to find out! In addition to the other answers, also consider this: Federal bond interest rates are nowhere near the rates you mentioned for short term bonds. They are less than 1% unless you're talking about terms of 5-10 years, and the rates you mentioned are for 10 to 30-years terms. Dealer financed car loans are usually 2-5 years (the shorter the term - the lower the rate). In addition, as said by others, you pay more than just the interest if you take a car loan from the dealer directly. But your question is also valid for banks. Yes.  I've spoken to mortgage officers from various banks who will do conventional loans with anything as low as 3.5% down, however there are many more restrictions (e.g., normally you can borrow funds from a parent or relative for a down payment, in this case that was prohibited). If you are already pre-approved, then your approval letter should state the specifics you need to adhere to.  If you would like to modify that (e.g. put a smaller amount down), then you could still get the loan, but your pre-approval won't be valid. I would recommend speaking with your lender (and perhaps with a few others as well) about the new home you are looking at. "The loan is the loan, the down payment is not part of the loan.  The principle amount owed on the loan at the beginning of the loan is the amount of the loan. If your loan amount is $390,000 then that's below the ""jumbo"" classification.  Your down payment is irrelevant. Lenders may want or require 20% (or any other amount) down so the loan will meet certain ""loan to value"" ratio requirements. In the case of real estate the lenders in general want a 20% down side cushion before you're ""upside down"" (owe more than the home is worth). This is not unique to homes and is common in many secured lending instruments; like cars for example." Save up a bigger downpayment.  The lender's requirement is going to be based on how much you finance, not the price of the house. The only reason to lend the money in this scenario is cashflow. But considering you buy a $15000 car, your lifestyle is not super luxurious, so $15000 spare cash is enough. You are planning on buying a car that is 50% of your salary. Add your student debt to that and your total debt is >50% of your salary. I would suggest getting a few credit cards to build up credit, but can you manage that? Buying a 25k car with 55k salary is overspending. Get a second-hand car for 7k or so. Plus, buying a new car is not smart either, from a pricing standpoint, if you really want a new car, buy one that is 1 to 2 years old.