I get this question often. “How much should I put down on my car?” Rule of thumb is usually 20% but the answer might not be so straightforward.

Your objective is the most important thing to keep in mind when considering putting money down. For most people, the monthly payment is very important. We all have budgets and the payment should fit comfortably within it. Simple mathematics will tell you that the higher the down payment, the lower your monthly payment. This is because your financed amount is lower.

Let’s look at financing a $35,000 vehicle including tax, title, and license. Let’s say you secured a 4% interest rate and you’re planning to put $0 down and would like to finance for 60 months. Your payment would be $644 a month. If you put $5K down, your payment would be $552.50. $10K would get you a payment of $460. You get the idea. The more down, the less your monthly payment.

If you’re looking to lease, my view on a downpayment is much different. The same basic principle applies to leasing meaning that the more you put down, the lower your lease payment will be. The sole problem I have with putting too much money down on a lease is the liability you sign up for. A leased vehicle like a financed vehicle will be covered by your full coverage insurance policy in the event of an accident. If your lease vehicle is totaled in an accident, you don’t get the money you put down on it back. You’re out of that cash. It’s most common to cover tax, title, licensing fees, security deposit, and first month’s payment in a down payment before you leave the dealer.

So how much would I recommend putting down on a lease? As little as possible. In some cases you can get away with just the first payment due (or if there is a special there may be no first payment at all). This will lighten your initial out of pocket cost but on the flip side, your monthly payment will be higher. You have to decide if you’re okay with a higher payment. For those who own companies, this might be a better choice as you might be writing off the payment as a business expense.

Ultimately, it’s your decision. Just understand the liability risk of putting too much money down on a lease.