When you have less than perfect credit, finding a bad credit auto loan with no money down is going to be very difficult. A down payment is nearly always required with subprime financing as well as with tote the note and buy here pay here (BHPH) dealerships. The good news is that the down payment needed is usually reasonable, and you don’t have to use only cash to cover it.
Down Payment Requirements
Just how much you need for a down payment depends on the lender’s requirements. Typically, subprime lenders look for a minimum of $1,000 or 10 percent of a vehicle’s selling price, whichever is less. So, it’s very possible you could only need $500 down. BHPH dealers have a different approach, as their down payment requirement is usually dependent on the cost of the car. These dealerships could require more than a thousand down, depending on the vehicle you choose.
It doesn’t hurt to ask what a lender’s down payment requirements are before submitting an application, but you can – and should – save up for a down payment in the meantime.
Making the Down Payment
Have you heard of the 20/4/10 rule before? This budgeting rule states that you should make a down payment of 20 percent, finance a car for no more than four years, and have a monthly payment that's 10 percent or less of your pre-tax monthly income. It's a good starting point when figuring out how much you should be spending on a vehicle, but you don't have to follow this rule to a “T.”
Putting 20 percent down comes with a number of benefits, but it can be a lot of money for borrowers on tight budgets. It’s also well above the minimum amount required by most subprime lenders. If you want to aim for a down payment that’s close to 20 percent, but aren’t sure how to reach the down payment requirement, there are some options:
- Trade-in equity – If you have a trade-in with with an actual cash value that’s more than the loan balance (if it’s still being financed), you can apply that equity toward the down payment. If you own your car free and clear, you can use its entire value as a down payment. If, however, your trade-in has negative equity (it’s worth less than the loan balance), you’re probably going to have to come up with the cash to cover the negative equity plus more cash for the down payment. You can roll over the negative equity in some cases, but you end up paying for (and interest on) the new loan plus the negative equity in your old loan when you do this.
- Cash – If you don’t have a vehicle to trade in, you need to come up with a cash down payment.
- Combination – If your trade-in equity doesn’t cover the entire down payment requirement, or you just want to make a bigger down payment, you can combine cash with your trade equity.
We’re Here to Help You
Remember, a down payment is there to help, not hurt, your chances of an auto loan approval. There are many ways you can save, budget, and get ready for a down payment ahead of time.
If you have a down payment now, but worry your credit’s holding you back from getting approved, we have a solution. Auto Credit Express has been helping people with credit problems find new and used car loans since 1999 with our nationwide network of affiliate dealers. Getting the process started is easy. Just fill out our simple and free auto loan request form, and we’ll get right to work matching you with a dealership in your area.