For consumers with less than perfect credit, a down payment can be one of the best tools to begin a successful auto loan. There are a number of reasons this is a best practice, and we’ll let you in on our top three.

Reduced Principal

making a down paymentOne of the biggest advantages to having a down payment is that it reduces the principal amount of a loan.

Reducing the principal leads to many positive results over the life of your loan. For example, a smaller loan amount will save you money in the long run because you’ll pay less in interest charges over the loan term. Depending on the size of the down payment, you may be able to shorten the term of the loan, which, again, will save you money in interest charges. In some cases, even with the shorter loan, if your down payment is large enough, you may even be able to lower your monthly payments.

Consumers in need of special finance are often required to make a down payment. The amount borrowers are required to put down varies, but, as a general rule, subprime lenders usually require $1,000 or 10 percent of the vehicle's selling price, whichever is less.

Quicker Equity Recovery

Equity is the difference between the value of a vehicle and the amount owed on a loan. When the amount owed is more than the current value of the car, this is considered negative equity, also known as being “upside down” or “underwater.”

Having negative equity can become a problem if you need to trade in or sell the vehicle. Any difference between the loan amount and the value of the vehicle will have to be paid out of pocket, or rolled into a new loan if you are getting another car.

All vehicles lose value over time, but if you use a large down payment, you can reduce the amount of time your car has negative equity – or possibly eliminate it altogether. That’s because big down payments can offset much of your vehicle’s depreciation.

Increased Loan Success

Statistics have shown that consumers who contribute large down payments have a higher rate of successfully completing their auto loans and are less likely to default on them. This means lenders are more likely approve borrowers who have a down payment – the larger the better – than those who don’t. In fact, borrowers with bad credit who can’t come up with the minimum required down payment will typically have a harder time getting approved for auto financing.

Our Resources Working For You

A down payment can be one of your biggest assets when seeking auto financing as a credit-challenged consumer. Preparing yourself for success by knowing your credit, figuring out the price range of the vehicles that meet your needs, and saving money to make a down payment can make the difference between completing an auto loan with ease and not getting approved for one in the first place.

If credit woes have you down and your search for financing isn’t going how you planned, let Auto Credit Express help. Our service can point you toward a local special finance dealer with the lending resources available to assist people with bad credit, no credit, and even repossession or bankruptcy. It’s simple to get started today, just fill out our no-obligation online auto loan request form now!