Down payments are a great way to start off your auto loan. As far as their impact, they can have many benefits – and improve your chances of getting approved for a car loan if your credit score is worse for wear.

Down Payments Can Really Make an Impact

When you make a down payment on a car loan, that money is applied to the selling price of the vehicle. If you’re purchasing a $15,000 car with a 10% down payment ($1,500), then you're only financing $13,500 (excluding add-ons, taxes, or other fees that you may roll into your loan).

Down payments have many benefits, besides lowering the amount you need to finance! Possible impacts a down payment can have on your car loan:

  • Smaller car payment
  • Fewer interest charges
  • Wider vehicle options
  • Could qualify you for shorter loan terms
  • The lender may offer a lower interest rate

Down payments can expand your vehicle options. If you want a car that’s over your maximum loan amount, then a down payment can bridge that gap for you. Want a vehicle that’s $20,000 but you only got approved for $15,000? Put $5,000 down and finance the $15,000! Having cash saved for vehicle financing can allow you to get a more expensive car.

Additionally, since you’ve paid for part of the vehicle upfront, a lender doesn’t need to finance the entire selling price – just the remaining amount. This leads to a smaller loan balance, a smaller monthly payment, and fewer interest charges overall!

Auto loans, nearly always, use the simple interest formula. This means your interest charges add up daily based on your interest rate and your loan balance. So when you put money down, it directly impacts how much interest you accrue over the course of your loan – in a good way!

With a down payment, lenders may be more willing to negotiate the terms of your car loan, too. This could mean getting a lower interest rate or qualifying for a shorter loan term – both of which can save you money in interest charges.

Down Payment Requirements With Poor Credit

How a Down Payment Impacts Your Car LoanIf your credit score is poor, or below 660, it’s very likely that you need a down payment to qualify for a car loan. How much you actually need can vary, since it can depend on the vehicle you’re looking to finance and the lender you're working with, but many bad credit lenders have similar stipulations.

Subprime lenders – lenders that assist bad credit borrowers – almost always require at least $1,000 or 10% of the vehicle’s selling price down. This can be either cash, trade-in equity, or a combination of the two.

Down payments not only offer you many benefits as a borrower, but they also provide some more security for the lender. Borrowers that put cash down on their auto loans typically have a better chance of completing the loan successfully.

In other words, down payments give the lender more confidence that you can complete the loan, and increase your approval odds!

Is it Possible to Get a Car Loan Without a Down Payment?

Yes, it’s possible to get approved for an auto loan without a down payment requirement. However, the luxury of qualifying for 0% down car deals is typically reserved for borrowers with good credit scores. For the most part, where there are credit issues, there’s also a down payment requirement. But the less you need the finance, the less you likely need down.

Used cars are typically much cheaper than their brand new counterparts, which in turn, can mean a smaller down payment requirement. So, if your credit score is less than stellar, it may be wise to choose a used vehicle.

Looking to Get on the Road?

Even with a down payment in hand, it can be tough for borrowers with credit challenges to find lenders that can assist them. Most dealerships are signed up with lending partners and some are signed up with subprime lenders.

Subprime lenders specialize in helping borrowers with credit issues get vehicle financing. These lenders look at more than just your credit score – they examine the other moving parts of your financial stability to see if you’ve got the stuff for financing.

Here at Auto Credit Express, we want to point you in the right direction for your next car loan. Instead of jumping into the fray alone, fill out our free auto loan request form and we’ll look for a dealership in your local area with bad credit lending resources.