Car buyers with bad credit are usually required to make a minimum down payment when financing a vehicle as a form of borrower participation.

Financing a Vehicle with Bad Credit

Your credit score is a way for lenders and creditors to evaluate your ability as a borrower. Lenders set their own standards for qualifying, and the majority of them aren't willing to offer bad credit car loans.

Subprime lenders – those who do finance applicants with less than perfect credit – offset the risk bad credit represents with various requirements and vehicle eligibility rules. These include: a maximum and minimum on the amount you can finance, minimum income requirements, employment rules, maximum debt to income and payment to income ratio requirements, restrictions on age and mileage of vehicles, loan lengths, and more.

In addition, borrowers can typically expect a higher interest rate and a down payment requirement.

Down Payment Requirements on a Car with Bad Credit

saving for a down paymentAs a minimum down payment on a bad credit car loan, subprime lenders generally want 10 percent of the vehicle's selling price or $1,000. They're willing to accept the lower amount of the two, and take both cash and trade-in equity.

Keep in mind that this is only what we'd typically expect, and some lenders may require more, while others may accept a lower amount. The down payment can also vary with the same lender depending on the structure of the loan.

Lenders appreciate when borrowers put their own money on the line, because it shows they're serious about paying back the loan. Some dealers and lenders refer to down payments as "borrower participation," and it makes sense why they do.

When you have your own money invested in a vehicle, it gives you a greater sense of ownership. In that sense, lenders see a down payment as an investment that makes you more likely to successfully complete your loan.

In addition to helping you get approved, putting money down comes with other benefits. With a down payment, you should be able to save money down the road. When you borrow less, it lowers the interest charges you end up paying. This can make a big difference with the higher interest rates associated with bad credit loans.

Finding a Car Loan with Bad Credit

If you're dealing with less than perfect credit and need a car loan, expect a down payment of around 10 percent or $1,000. Preparing and saving up beforehand can help you avoid problems down the road. Considering it's tax season, you may be able to help yourself by using all or part of your tax refund.

Got your down payment but don't know what you need to do next to get financed? Auto Credit Express matches consumers with local dealerships that are capable of handling challenging credit situations. Take the first step by filling out our free and secure auto loan request form right now.