Auto loans are the second-largest debt most Americans carry, and the decisions you make at the dealership — term length, down payment, rate source — determine whether you pay a few thousand or tens of thousands in total interest. Running the numbers before you sign is the single most valuable thing you can do before any vehicle purchase.

Shorter Terms Save Thousands

For a $35,000 principal at 6%, the 60-month contract payment is $676.65 with $5,598.88 interest. At 72 months it is $580.05 with $6,763.68 interest: $1,164.79 more. These examples exclude tax and fees. Compare payment size and the full ledger rather than assuming the lower payment costs less.

The Down Payment Sweet Spot

Putting 20% down on a new car is the standard recommendation for a straightforward reason: it approximately offsets the first-year depreciation, meaning you are not immediately underwater from the moment you drive off the lot. On a $35,000 car, a 20% down payment is $7,000 — and the car will likely be worth $26,000–$28,000 after 12 months. With $7,000 down, your loan balance stays below (or close to) the car's value throughout the life of a 48- or 60-month loan.

For used cars, the 10% recommendation reflects lower depreciation risk — a five-year-old car has already absorbed the steepest part of its depreciation curve. However, used cars often carry higher interest rates (7–12% vs. 3–6% for new cars with promotional financing), which means the loan term and down payment decisions are equally critical. One overlooked strategy: put at least enough down to cover taxes, title, and dealer fees out of pocket. These transaction costs add $1,500–$4,000 to the vehicle's price in most states. If you finance them, you are paying interest on fees — a particularly inefficient use of borrowed money. Arriving at the dealer with pre-approved financing and a specific down payment figure prevents the salesperson from structuring the deal around monthly payment rather than total cost.

Dealer vs. Bank Financing

Compare complete offers with the same purchase price, cash down, trade equity and ownership horizon. A $3,000 rebate on a $35,000 purchase leaves $32,000 financed; at 6% for 60 months, payments total $37,118.98. Financing $35,000 at 0% totals $35,000, so the 0% offer costs $2,118.98 less in this no-tax, no-fee example. If the rebate changes the tax base, adjust that assumption separately.