Here at Auto Credit Express, we get a lot of questions from customers who are interested in no money down car loans with bad credit. And it is possible to get approved for an auto loan with bad credit and no down payment. But it is normally not advised.
Sure, saving up the money for a down payment is often a hassle. However, bad credit car buyers can benefit in several ways by providing cash up front on their vehicles.
How a Down Payment Helps Bad Credit Buyers Get Approved
Auto loan approval is largely based on how much risk you pose to the lender. This is why applicants with bad credit are often turned down by traditional banks and credit unions. Of course, special finance lenders look at factors other than your credit in order to offer bad credit financing. But they still have certain requirements that potential buyers must meet.
Special finance lenders also must consider risk when making approval decisions. This is why they require proof of a minimum monthly income. Lenders need to verify that you are capable of making a car payment. Once it is clear that you are, lending you money to buy a vehicle is less of a risk.
If you are able to provide a down payment, you will reduce the size of the loan that you're requesting. This, in turn, will decrease lender risk and might even make financing approval more likely. Also, contributing your own money will send a message to the lender that you are serious about paying for the car.
How a Down Payment Saves Money for Bad Credit Buyers
For a car buyer with good credit, putting money down on a car purchase may not save them a huge amount of money down the road. However, because buyers with bad credit have to deal with higher interest rates, having a down payment can make a big difference.
Again, any cash that you're able to put down will reduce the amount that you're financing. And the less you borrow, the less you'll have to pay in interest charges. Once you figure out how much you'll be paying in interest over the entire loan term, it should be clear that a down payment would be helpful.
Speaking of loan terms, putting a good amount of money down on your vehicle may allow you to shorten the length of your term. Nowadays, car buyers are stretching out their loan terms in order to reduce their monthly payments. But this really isn't a good idea, especially for bad credit customers.
Taking on a longer loan term will make it necessary to pay more in interest charges over time. Also, most warranties will expire during the course of a long repayment period. This could mean that an unsuspecting driver might end up having to pay expensive repair bills.
How a Down Payment Reduces the Risk of Negative Equity
Finally, because all cars depreciate in value over time, negative equity is a problem that many drivers face. Having negative equity (or being "upside down") means that you owe more on your auto loan than your vehicle is worth.
This can be a problem if you find that you need to trade in a car that is still being paid off. Most dealers will accept a vehicle with a lien as a trade-in, but lenders prefer that you have equity in it. With negative equity, you either won't be able to trade the car in, or the negative equity will be rolled over into your new loan. If this happens, you'll find yourself even further "upside down" on your new vehicle.
Providing a decent down payment will build equity in the car you're financing. This may make it easier to trade the vehicle in before the loan is paid off.
Bad Credit Car Loan Assistance for Almost Any Situation
At Auto Credit Express, we understand that sometimes you can't wait for your credit to improve before buying a car. In fact, you may not have time to save up for a large down payment.
This is why, no matter what your situation looks like, we'll do everything we can to help you get approved for an auto loan. We can match you with a dealership in your area that is connected to the right kinds of lenders. This will give you your best chance at financing approval, and it will cost you nothing. Our service also comes with no obligations and our process is fast and easy.
You really have nothing to lose. So go ahead and fill out our simple and secure online application to get started today.