How much should you put down on a vehicle?

The traditional advice: 20%

The often-cited 20% down rule comes from the mortgage world and doesn't translate cleanly to auto loans. It's not a target — it's a guideline for avoiding negative equity early in the loan.

What down payment actually does

1. Reduces your monthly payment. Every $1,000 down saves roughly $18–$22/month on a 60-month loan. 2. Reduces total interest paid. On a $35,000 vehicle at 6% over 60 months, $5,000 down saves approximately $600 in interest. 3. Reduces your loan-to-value ratio. Lenders offer better rates when you borrow less than 80% of the vehicle's value. 4. Protects against negative equity. If you total the car and your insurance payout is less than the loan balance, you pay the difference out of pocket.

When a larger down payment makes sense

• You're financing at a high interest rate (6%+) — every dollar down saves more
• You want to keep monthly payments below a specific target
• You're keeping the vehicle for 7+ years (maximizes the interest savings)
• The vehicle depreciates quickly (trucks retain value; some sedans don't)

When a smaller down payment makes sense

• You have a low-interest loan (under 4%) — the opportunity cost of that cash is real
• You need liquidity for an emergency fund
• You're leasing (down payment on a lease is at risk if the car is totalled early)
• You have a good trade-in that covers the gap

The floor: cover the taxes

At minimum, most financial advisors suggest having enough cash to cover the taxes and fees (GST + PST in BC = ~12% on a new vehicle). This prevents you from adding $4,000+ in taxes to a loan from day one.

On a lease

Be cautious with large down payments on leases. If the vehicle is totalled or stolen in month 3, you lose your cap cost reduction. Some lease advisors recommend $0 down on a lease and instead use the cash to top up insurance gap coverage.