You usually don’t need to put money down when refinancing a car, though there are some advantages to doing so.
Pros of down payment when refinancing:
Reduced loan amount: A down payment reduces your total loan amount, which could qualify you for a better interest rate and will lead to a smaller overall debt.
Lower monthly payments: The lower your loan amount, typically the lower your monthly payments (assuming you didn’t extend your loan term).
Improved loan-to-value ratio: A down payment can improve your loan-to-value (LTV) ratio, which is the ratio of the loan amount to the car’s appraised value. A lower LTV ratio may lead to more favorable loan terms.
Cons of down payment when refinancing:
Tying up cash: Using cash for a down payment means that money is no longer available for other purposes, such as emergency funds or other investments.
Depreciation: If you make a down payment in order to extend your loan term, you risk your car depreciating faster than you’re paying down the loan, potentially leading to negative equity.
When deciding whether or not to put money down on a refinance, weigh the cost of the cash to the potential benefits, and see whether you can negotiate a better interest rate solely based on your credit score.