If you're a borrower with a poor credit history, chances are you're going to be required to provide a down payment when getting your next car loan. Don't be put off by that, though. A down payment isn't only a requirement, it’s a great way to save money on your next vehicle.

Making a Down Payment on an Auto Loan

A down payment is often looked at as one of the most daunting tasks when saving for an auto loan. We get it, saving money is hard, especially when finances are tight to begin with. Regardless of how long it takes, or how difficult it is to save, the fact remains that a down payment is usually required when you're trying to get a bad credit car loan.

There are many options when it comes to making a down payment on your next auto loan. No matter which track you take, the goal is the same: put down at least the minimum required by your lender. There are usually three ways to make a down payment on a car loan:

  • Making a Down Payment on a Bad Credit Car LoanCash – Cash is king when it comes to down payments. Lenders like to see borrowers with some "skin in the game." This shows them you're willing to invest in your own success. Additionally, statistics show borrowers who put money down are more likely to successfully complete their loans.
  • Trade-in equity – If coming by the required cash amount is proving difficult, you can use any equity in your current vehicle to offset some of the down payment requirements. Equity is the difference between the value of your car and the amount you owe on its loan. If you own your vehicle outright, the entire value is considered equity. If you still owe on an auto loan, any amount greater than what you owe a lender is considered equity.
  • Combination – It's not all or nothing in the down payment game. You can use a combination of cash, trade-in equity, and, in rare cases, even a credit card to satisfy the requirements of your lender.

Car Loan Down Payment Requirements

The amount you're required to put down can vary by lender and car you're planning to finance. Typically, most subprime lenders that work with credit-challenged consumers require a minimum down payment of at least $1,000 or 10% of the vehicle's selling price.

You shouldn't let the news of a required down payment get to you though, because the flip side of the coin on a required down payment is long-term savings and possibly a better equity position when it's time to look for a loan in the future.

How a Down Payment Helps You Save

The simple truth about down payments is that the more of your money goes toward a loan, the less money you have to borrow from a lender. When you borrow less, there's less principal balance for interest to accrue on, which is a big plus when it comes to poor credit.

Interest is the cost of borrowing money, and the lower your credit score is, the higher the interest rate you're likely to qualify for. Having a higher interest rate means that it costs more to borrow money, so a down payment can go a long toward saving you money down the line.

Interest charges accrue daily on the balance of your auto loan. This also means that the faster you pay off your loan, the less you're going to pay in interest charges. Because a high-interest car loan costs more the longer it takes to repay, it's a good idea to take on the shortest loan term you can afford.

Additionally, when you make a down payment, you're closing the gap between how much you owe and the value of your vehicle. The more you put down, the smaller the gap between loan balance and car value. This means you can pay off your loan more quickly, which increases your ability to gain equity sooner.

Ready to Get Saving?

If you're in the market for another vehicle, start saving for a down payment now! If you're already on the way to having a solid down payment, your next step could start right here. At Auto Credit Express, we have a nationwide network of special finance dealerships that are signed up with subprime lenders that can help when you have poor credit.

Instead of wondering where to go for your next loan, simply fill out our easy and fast auto loan request form. Skip the search and get matched to a local dealer that wants to work with you.