Everyone knows that a new car loses a significant amount of its value when you drive it off the lot. That's where the down payment -- the amount of cash you bring to the purchase -- comes in.

The down payment can demonstrate to a lender that you're willing to make an investment in the deal, and perhaps gain a more favorable interest rate. It also helps take some of the shock out of the instant depreciation so you're not "upside down'' on your loan for years and years.

What's it mean to be "upside down?'' This is the industry term for someone who owes more on a vehicle than it's worth. Almost every new car -- and most used car -- transactions involve a period of being upside down on the loan. After all, if you put 10 or even 20 percent down on a car and it depreciates 25 percent in the first three months, you're upside down, at least for awhile. Where it gets worrisome is when the owner remains upside down three and even four years into a loan.

You've probably also known some people who made matters worse by rolling the old car's remaining debt (upside down) into a new loan. They're basically paying interest and making payments on a vehicle they don't own anymore. Tacking the extra debt on their new vehicle loan also puts them upside down on their new vehicle, too.

How do you avoid that situation, aside from making the best initial purchase deal possible and not rolling your old car's loan into the deal? Make a substantial down payment, if at all possible. You should plan on putting down at least 20 percent of the purchase price. With that much down, you should begin to see positive equity about two years into a four-year loan, assuming the vehicle's kept in good shape.

If you can't put down 20 percent, scrape up as much cash as you can and keep the term of the loan as short as possible. Paying if off sooner (three or four years versus seven or eight) will also allow you time to save money for the next vehicle.

You can use Bankrate's auto loan calculator with amortization table to get the remaining balance at any given point. Comparing that amount with the estimated value of the car will tell you when you stop being "upside down" in the loan. That calculator also has an "extra payment" feature that will show you the impact it will have if you make extra principal payments.