The amount you need for a down payment on a bad credit car loan varies. A down payment is usually required when you have poor credit for several reasons. Let's take a closer look at why, and how much you should put down.

Down Payment Requirements Vary

When you have bad credit, you most likely need to find a subprime lender or buy here pay here dealership in order to get approved for auto loan. Both types of lenders have unique requirements in order to get approved for a car loan, but both generally ask for a down payment.

  • How Big of a Down Payment Should I Make on a Bad Credit Car Loan? Subprime lenders – These lenders work exclusively through special finance dealers and help consumers that struggle with poor credit. Typically, they ask that you make a down payment of $1,000 or 10% of the vehicle's selling price, whichever is less. These lenders like to see you make an investment in your loan.
  • Buy here pay here dealerships – These dealers are also lenders, and often ask for larger down payments. Because these dealerships don't rely on as many outside factors as subprime lenders to approve you for financing, they rely on the size of your income and how big of a down payment you're willing to make. It's not uncommon to have down payments that amount to 20% of a car's selling price, but the exact figure depends on the vehicle you select.

So, just how much is the right amount to put down? Because the size of the down payment often depends on the price of the car you're buying, there's no "right" amount. The lender sets a minimum down payment requirement for each financing situation, so as long as you meet that, you aren't required to put down more.

Auto Credit Express Tip: If a dealer calls you and says that your financing fell through and to come back with more cash for a down payment and to sign new paperwork, you should beware. This may be something called yo-yo financing, and it's illegal in some states.

Why You Need a Down Payment

Down payments enable you to borrow less, so it's often suggested that you make the largest down payment you can afford. While this can be a good practice that allows you to save money in interest charges and eliminate or reduce the amount of time you have negative equity, it isn't always necessary.

Making an overly large down payment isn't needed if you purchase a reliable, affordable used vehicle, or if you purchase GAP insurance to cover the difference between your car's value and the amount you owe on the loan.

Down payments also give a lender peace of mind. If you're willing to make the necessary down payment required, it's often seen as a sign of good faith that you're going to work toward successful loan completion.

The Bottom Line

In order to ensure you're getting the right loan for your situation and making the right down payment amount, you need to make sure you're going to the right lender. Not all lenders can work with people who are struggling with bad credit, but we can help you find those that can.

Here at Auto Credit Express, we work with a nationwide network of special finance dealerships that are prepared to help people with bad credit get financed. Simply fill out our easy, no-obligation auto loan request form, and we'll get to work matching you with a local dealer!