The benefits of having a down payment outweigh the disadvantages, but saving up for a down payment can take time. A common question we get at Auto Credit Express is whether or not a personal loan can be used as a down payment. The simple answer is no, but there are other options to consider.
What is a Personal Loan?
Equifax, one of the three credit bureaus, describes personal loans as a type of unsecured loan that's not backed by collateral (like a car or house). What makes a personal loan different from a credit card, or a revolving credit account, is they're a type of installment loan. This means that personal loans have a fixed repayment term (usually two to five years) with a fixed interest rate. You receive the loan amount, then pay it back, with interest, in monthly installments.
Down Payment Options
Personal loans can't be used as a down payment on a car loan. Auto lenders require buyers to invest their own funds into the car because they're more committed to paying back the loan when their own money is involved. When it comes to your down payment, you really only have two options:
- Cash – If you plan on using cash for your down payment on a subprime auto loan, you’ll be asked to put down $1,000 or 10 percent of the car's selling price, whichever is the cheapest option.
- Trade-in equity – If you have a vehicle that's paid off or you have equity in, you can trade it in and apply its worth or equity to your purchase. Keep in mind that the trade-in has to be in your name.
You can also use a combination of cash and trade-in equity for your down payment. Just make sure the total amount is equal to (or more than) what the lender asks for.
A personal loan can’t be used as a down payment. So, if you’ve been thinking about taking out one to use for a down payment, stop right there and start saving up and/or preparing your trade-in instead.
If you’ve been saving for awhile but your search for financing isn’t going as 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 in challenging credit situations. It’s simple to get started today, just fill out our no-obligation online auto loan request form.