The majority of high risk car lenders have similar requirements for down payments on auto loans
What we know
Car buyers with problem credit often ask this question about the auto loans offered by our affiliate dealers: “Can I buy a car with bad credit and no money down?” The answer, in most cases, is “no” – unless they have a trade-in with a cash value that meets the lender’s requirements.
And while this probably isn’t the answer they’re looking for, the fact is that borrowers with less than perfect credit shouldn’t view down payments as a stumbling block to a car loan. But the fact is that putting money down also has its advantages.
Here at Auto Credit Express we believe down payments are also a big advantage and we should know because for over two decades we’ve been helping consumers with poor credit find those dealers that can arrange for approved car loans for them.
It’s also why we feel it’s our job to explain to these car shoppers why the larger the down payment they can come up with, the better chance they’ll have of successfully completing their loan and the credit repair process.
Those pesky down payments
Nearly all lenders who work with people that have experienced credit problems require a down payment in the form of cash or real trade equity. They ask for down payments because they see this as a way to increase the odds that these borrowers will make regular, timely loan payments.
Their reasoning behind this is simple and based on years of lending experience: with little or no money invested in a vehicle, especially during the first two to three years when it’s worth less than the loan balance, they stand to lose quite a bit of money if a borrower walks away from a loan. With a down payment of at least 10% invested in a vehicle, these lenders also know that it’s far more likely that same borrower will continue making payments.
But from a borrower’s point of view there are also advantages to this situation. That’s because a down payment can also help by:
• Reducing the monthly payment because the principal will be lower. The larger the down payment, the lower the monthly payment
• Offering the option of shortening the loan term. Instead of lowering the monthly payment, down payments can also be used to reduce the loan term. A large down payment, for example, could enable the borrower to reduce the finance term from 60 months to just 48 while keeping the payment the same or increasing it just slightly. This, in turn, also reduces the time the vehicle is worth less than the payoff – a situation known as “negative equity.”
• Most subprime lenders take into account the down payment as a percentage of the loan amount – called loan to value or LTV. The higher the down payment, the lower the loan to value which means that, as the loan to value drops, the chances for a loan approval usually increase.
• Best of all, down payments also reduce the total amount of interest paid on the loan. This is especially important with the higher interest rates found with high-risk auto loans.
As we see it
With any car loan, but especially when buying a car with bad credit, down payments are the biggest way overall interest costs can be reduced.
Another advantage is that the larger the down payment, the sooner the buyer can trade out of the car or refinance it (provided payments have been made on time) into another loan with a lower interest rate.
Speaking of advantages, here’s where we come in: at Auto Credit Express we match applicants that have experienced car credit problems with dealers that can offer them their best chances for car loan approvals.
So if you’re ready to establish your auto credit, you can begin now by filling out our online car loans application.