A deferred, or delayed, down payment car loan can be tempting for bad credit borrowers in a tough spot who need a car right away. However, it’s not always a good idea to go through with it. Here are some things to be aware of before choosing to agree to a deferred down payment.
How Deferred Down Payments Work
If you don’t have enough money to meet a down payment requirement right now, an auto lender may allow you to put the rest down later. This is called a deferred or delayed down payment, and sometimes called a pickup payment by dealers.
You typically sign a contract (a hold check agreement) agreeing to pay the remaining down payment amount by a certain date. In some cases, the delayed down payment can be paid in installments. You may have the option to write a post-dated check for the rest, too.
Delayed down payments can be useful, especially in a pinch, but if you can’t make the due date, the consequences can be severe.
Consider Delayed Down Payments Carefully
Whichever repayment options you may have available for a delayed down payment, it’s important to understand that if you can’t repay the entire amount when the time comes, the lender is likely to repossess your car.
Delayed down payment installments can be steep and hard to follow through. Often, auto lenders require bad credit borrowers to make a down payment of at least $1,000 or 10% of the vehicle’s selling price. If you agree to pay the delayed down payment in two installments and your required cash down is $1,000, that’s an additional $500 a month on top of your car payment. And, don’t forget about full coverage auto insurance – it’s required when you’re financing, and a full coverage premium can be around $100 a month.
Can you reasonably afford to pay the deferred payments with all your other newly-established vehicle expenses? Will it overextend your budget, and might other bills fall to the wayside? It’s a risky move to delay those large installment payments, and you risk damaging your credit if you miss payments by stretching your other expenses to their limits.
If you fail to repay the delayed down payment amount, it could mean losing the vehicle soon after you took delivery. This can be stressful in itself, but with a repo listed on your credit reports it makes it even harder to get another auto loan. Generally, traditional and subprime lenders can’t approve borrowers with a repossession on their credit reports that are less than 12 months old.
If you’re 100% sure that you’re going to come into some money by the delayed payment due date, then it may work out for you. But if that money doesn’t come in time, or never comes at all, then a repo is likely imminent, causing even more future vehicle financing trouble.
Meeting a Down Payment Requirement
If you can manage it, it may be wise to simply save up for a down payment the old-fashioned way. If you have a car right now with equity, you can use the equity to meet a down payment requirement, too.
If the vehicle you want comes with a large down payment requirement and the only option you have at your disposal currently is delaying the payment, it may make more sense to choose a different car that you can afford a down payment on now.
Or, simply give yourself a month or two to save up the actual down payment amount. If you believe you can repay a delayed payment in a month, then it may be safer to wait a month before financing a vehicle to protect your finances and credit reports – just in case.
Get on the Road to an Auto Loan
Poor credit car buyers can struggle to find a lender that’s willing to work with credit challenges. Here at Auto Credit Express, we want to help make your car shopping journey easier by locating special financing resources for you.
Using our nationwide network of special finance dealerships, we’ll look for a dealer in your local area that’s signed up with subprime lenders – for free! Subprime lenders assist borrowers in many different credit situations including new borrowers, bankruptcy, and low credit scores. There’s never an obligation, so get started right now with our auto loan request form.