Often, a $1,000 down payment is a standard requirement for a bad credit auto loan. Is it enough, though? It largely depends on your personal budget and how much interest you’re willing to pay when you finance.

Minimum Down Payment on Used Car

If you’re a bad credit borrower working with subprime lenders or in-house financers, then you can expect a down payment requirement of at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever of the two is less). Some buy here pay here dealerships can require up to 20% of the vehicle’s selling price.

If you’re looking to purchase a used car for around $10,000, then $1,000 is a decent down payment. It’s widely advised to put down at least 10% of the vehicle’s value to increase your odds of getting approved for a loan, and to minimize your interest charges. If you want something more pricey than $10,000, you may need more than $1,000 down, but this depends on your individual situation.

If you have $1,000, it could be enough to qualify you for a car loan with a bad credit auto lender – if you meet their other requirements. We recommend trying out our car loan payment calculator to see how much of an impact your down payment size can have on your monthly payment.

Benefits of Down Payments

Is $1000 a Large Enough Down Payment on a Used Car?Putting cash down lowers the cost of financing. It’s recommended that borrowers put some money down on a vehicle to minimize interest charges and be able to afford a shorter loan term, since most car loans use a simple interest formula.

Simple interest means your interest charges add up daily based on your loan balance. The larger your loan amount, the more interest stacks up, and the higher your interest rate, the more you're charged to borrow money. By putting cash down, you save money because you’re borrowing less, and therefore you rack up fewer interest charges.

Down payments can also widen your vehicle selection as a bad credit borrower. If you finance a vehicle with a subprime lender, your maximum monthly payment is determined before you choose a car. By having more money to bring to the table, it can open up your car options.

Why Are Down Payments Required With Bad Credit?

Down payments are also called skin the game, and they show a lender that you’re able and willing to put some of your own money on the line to qualify for a car loan. Additionally, down payments lower the odds of the loan falling into default, since you’ve invested some of your own cash, and it lowers the total amount you need to finance.

Subprime lenders – indirect lenders signed up with special finance dealerships – often assist borrowers with credit challenges. They can often work within credit situations such as bankruptcy and poor credit due to past financial struggles, and no credit borrowers. However, they still almost always require a down payment to start the loan off on the right foot.

ACE Tip: Trade-in equity is also considered cash down on your next vehicle purchase. If you have a trade-in that you own or has equity, then it can help you put more money down or help you meet the down payment requirement of an auto lender.

Ready to Get on the Road?

Preparing for what a lender is going to require in terms of a down payment is a great place to start your car shopping journey. However, finding a lender that can assist with credit challenges can be tough. Here at Auto Credit Express, we want to help you along the way with our nationwide network of dealerships.

Over the last 20 years, we’ve cultivated a network of special finance dealerships that assist borrowers with unique credit situations in getting the car loan they need. To get matched to a dealer in your local area, complete our free auto loan request form! There’s never an obligation to buy, so get started now!