Buying an automobile is one of the biggest purchases many Americans will make in their lives. New car prices have hit record highs, creeping up to an average price of nearly $50,000 in 2025, according to Kelley Blue Book.
If you're buying a new car in 2025, choosing the right financing strategy can make a huge impact on your ownership experience and monthly payments. What is the "20% rule," and how can you use it to your advantage when purchasing the car, truck, or SUV of your dreams?
Thousands of drivers will finance new cars in 2025. The way you structure your financing plan affects how much equity you have in your new vehicle as well as your monthly, annual, and total payments including interest.
A minimum down payment of 20% can make financing deals less expensive in the long run for car buyers. The down payment "reduces the principal loan amount and the interest you're likely to pay" according to Chase Bank.
Suppose you're financing a new 2025 Toyota RAV4. If you secure a 60-month (five-year) financing loan with an interest rate of 4.99%, your monthly payments could be as low as $440 a month with 20% down (before taxes, fees, and interest). A 20% down payment on the 2025 RAV4 ($29,2590 before taxes and fees) works out to $5,850. This leaves a principal amount of 80% of the SUV's MSRP ($23,400 plus taxes, fees, and interest).
