Oftentimes, whether or not you’re required to have a down payment on a car loan depends on your credit score. If you have bad credit, you can usually count on needing a minimum down payment to be considered for auto financing – in which case, the amount matters!

Down Payments and Auto Loans

Does My Down Payment Amount Matter for a Car Loan?When you’re applying for an auto loan, your lender may require a down payment for you to be considered for financing. If you have bad credit, you can expect to need at least $1,000 or 10% of the vehicle’s selling price.

Down payments are often required for bad credit borrowers because lenders need to see that they’re invested in the car loan – borrowers who are invested are less likely to default. This means that a down payment lowers your risk as a borrower, which can help you get approved by an auto lender if your credit is less than perfect.

As a bonus, having money to put down may also help you get into a more expensive vehicle! If you’re only approved for $5,000 in financing, but you want a $7,000 car, putting $2,000 down allows you to be able to purchase the vehicle you want. Down payments can close the gap between what you qualify for and something more expensive.

However, simply having a down payment doesn’t mean that you’re automatically eligible for financing, since you still need to prove that you can afford the auto loan payments. There's also nothing stopping you from putting down more than the minimum amount required now to save some cash in the future!

Down Payments Save You Cash

While putting lots of money down on a loan seems like more hassle than it's worth, it can actually be worth a lot. It's because borrowing money from an auto lender means financing, which means interest charges.

Interest is the cost of borrowing money, and the bigger and longer your loan, the more interest charges you pay. By putting money down on a vehicle, you’re financing less. This means your down payment matters when it comes to how much interest you’re going to be charged over the course of the loan.

If you want to purchase a $12,000 car with 12% interest on a 60-month loan, you’d pay $16,016 by the end of the loan. Although the vehicle was only priced at $12,000, the interest charges really stack up.

But if you put $2,000 down on the car, you’d only pay $13,346 for the vehicle, and that means a savings of $670 (after subtracting the down payment). This may not seem like a lot at first glance, but that’s about three car payments, or three extra months of paying on that car.

This is why putting down money on an auto loan is recommended for any borrower. It saves you money long term, and it can lower your monthly payment. In the above example, the loan with no money down had a payment of $267, while the loan with the $2,000 down payment had a payment of $222. Not only do down payments lower your interest charges, they can also help free up your disposable monthly income by lowering your monthly car payment.

Saving Up for Your Next Auto Loan?

Whether or not you’re required to have a down payment largely depends on your credit score, and how much that amount matters to you depends on how much you’re willing to pay in interest charges. The minimum amount you’re required to put down can also depend on your lender and the price of the vehicle you’re looking to finance.

And if you’re a bad credit borrower, having a down payment matters a lot – in fact, you’re likely to need one to get into your next car loan. However, just having a down payment doesn’t mean you’re guaranteed to get into loan.

Traditional auto lenders may not even approve you if your score is too low, no matter how large a down payment you make. If you’ve run into the problem of getting turned down because of your credit score, it may be time to look into special financing.

Special financing is for borrowers with less than perfect credit, and it means you work with a subprime lender, and we know where they are! Here at Auto Credit Express, we have a nationwide network of dealers, and we’ll look for one in your area with special financing after you complete our free car loan request form. It's quick, secure, and there’s never an obligation to buy. Let’s get you back on the road with help from the right lender for the job!