If there is equity in your current car, you can use this equity as a "cap cost reduction" on a lease. In this situation, you would basically be selling your vehicle to the dealership. The money from the sale could then be used as credit toward your monthly lease payments.

A cap cost reduction (via trade-in or otherwise) on a lease won't save you any money on interest, the way a down payment does when you finance a car. Interest charges on a typical contract are locked in, regardless of whether or not you put any cash up front. However, the fact that it can lower your payments at least seems helpful to many consumers.

The Case for Using Your Trade-In as a Down Payment on an Auto Loan

Cap Cost Car Lease

Leasing a new car is a good option for some drivers, but it isn't for everyone. An ideal lessee is someone who wants a new car and doesn't mind always having a car payment. It also helps if this consumer has good credit and does a limited amount of driving.

With a lease contract, you only end up paying for the part of the car that you're using. This means that you're charged for how much the vehicle will depreciate over the course of your lease, plus interest. With leasing, the interest rate assigned is referred to as the "money factor."

If you have bad credit, your lease payments will be higher because you'll be dealing with a higher money factor. That is, if you can even get approved for a lease in the first place. Or, if you're a high-mileage driver, you run the risk of going over your mileage limit and paying large fees at the end of your lease contract unless you pay for extra miles up front.

Using a cap cost reduction can help to reduce your monthly payments, it's true. But you will still end up paying a higher-than-average price for the leasing privilege. In fact, this reduction may simply conceal the real cost of your lease contract.

If you have bad credit, purchasing a car with an auto loan might be a better option. The equity in your trade-in could be used as a down payment on an affordable vehicle. Then, by making timely payments, your credit score should improve by the time the car is paid off. After this, if your credit score has been given a big enough boost, leasing might be more affordable.

How Your Trade-In Can Help You Get a Bad Credit Auto Loan

If you're worried about your ability to get approved for an auto loan, you should know that there are lenders out there that can work with you. Special finance lenders can look at factors beyond your credit score in order to offer you an approval.

Also, having a down payment will make it even easier to get approved with a special finance lender. This is because providing money up front will reduce the amount of the loan you're requesting. By asking to borrow less, you will be reducing the risk for the lender. In addition, you will be showing the lender that you are serious about paying back the loan by investing your own money up front.

Even if you have a cash down payment saved up, the equity in your trade-in will be money on top of that to put toward your vehicle purchase. And when it comes to a down payment, the bigger it is the better off you'll be down the road. Not only can it help you get approved, but unlike a cap cost reduction, it can save you money in interest costs. A down payment may not reduce your interest rate, but by reducing the amount of your loan, you'll end up paying less in interest charges.

Easy Bad Credit Auto Loan Assistance

If you have bad credit or no credit and need to finance a new or used car, truck, van or SUV, Auto Credit Express can help. We can match you with a dealership in your area that is connected to the right kinds of lenders.

You can get a better chance at auto loan approval, and it won't cost you anything. Applying with us also comes with no obligations, so you have nothing to lose. Go ahead and fill out our simple and secure online application to get started today.