If your credit score is worse for wear, then having cash in hand is a great way to increase your odds of getting approved for auto financing. Meeting a down payment requirement can be tough for many borrowers, but with tax season approaching and round three of federal stimulus checks on the horizon, it may be easier than ever to get your hands on the vehicle you need in the coming months.

Upcoming Windfalls Could Help With Down Payments

Tax Refunds and Stimulus Checks Could Help You With Auto FinancingSaving up cash to meet a down payment requirement may be easier if you qualify for the latest stimulus checks, and use your upcoming tax refund if you’re expecting one.

The third round of federal stimulus checks negotiations was passed by the Senate on Sat. March 6, but so far the latest information states that couples earning less than $160,000 and individuals that make less than $80,000 are set to receive $1,400. The goal is to have the bill signed by President Joe Biden by March 14th, when the current extension of unemployment benefits ends.

If you qualify for the next round of the stimulus checks, and you’re set to receive a tax refund this tax season, those windfalls could be the way you boost your chances of getting approved for vehicle financing. The average tax refund for filers was around $2,535 in 2019.

As a bonus for residents of California, the state is rolling out its own Golden State Stimulus checks. Eligible residents are set to receive a one-time payment of $600 after they file their 2020 tax returns and meet income requirements.

Any additional windfall of cash you receive, like the federal stimulus check, can help with a down payment. You only need to meet the minimum down payment requirement of an auto lender, but you can always put more cash down to further lower interest charges and lower the amount you need to borrow to get into a vehicle.

Why Down Payments Are Required With Poor Credit

Having bad credit can make financing a little tougher since most lenders use your credit score as a way to quickly judge your ability to repay loans (a.k.a. creditworthiness).

If you have a tarnished credit history, or you have yet to start one, then an auto lender is likely to need some skin in the game to approve you for financing. Skin in the game simply means a down payment, and it shows the lender you’re able and willing to invest in the loan.

Down payments don’t just prove you have the chops to repay a car loan, though. They also offer a myriad of benefits:

  • Lowers the chance of your loan falling into default
  • Decreases the loan principal
  • Helps you avoid negative equity
  • Saves you money in interest charges
  • Can open up vehicle financing options
  • Possibly allows you to qualify for a better interest rate
  • Could allow you to choose a shorter loan term

Putting in the effort to put cash down on a car loan can bring you many benefits, save you money in the long run, and overall, increase your chances of getting approved for financing when you have credit challenges.

How Much Cash Should I Put Down With Bad Credit?

How much money you should put down on a bad credit auto loan can depend on a lot of things, but generally, lenders have a minimum requirement. If you’re applying for vehicle financing with a subprime lender that's equipped to handle many tough credit situations, you can typically expect to need at least $1,000 or 10% of the vehicle’s selling price – in some cases whichever is less.

Most subprime lenders don’t approve loans for less than $5,000, which is something else to consider when you’re budgeting for a savings goal. As a safe starting point, it’s recommended to save at least $1,000. The state of your credit history can influence the lender’s minimum requirement as well. The lower your credit score, the more the lender may ask you to put down to qualify for the auto loan.

In our dealership network, borrowers who use our dealer-matching service make an average down payment of around 13%. If you’re looking to buy a car for $10,000, you may need to put down between $1,000 to $1,300. The more expensive the vehicle, the higher the down payment requirement is likely to be.

One of the biggest benefits of a down payment is getting a smaller car payment. If there’s a specific make/model you want, but the loan terms put your monthly payment above what you qualify for, then having a large down payment widens your vehicle options. You can use our auto loan payment calculator to see how much of an impact your down payment size may have on your monthly payment.

Down Payment Planned: What’s Next?

Having a down payment plan is one thing – finding a dealership that’s signed up with lenders that can assist with bad credit is another task to tackle. Many dealers are partnered with lending institutions, but special finance dealerships are the ones signed up with subprime lenders.

With Auto Credit Express by your side, you don’t have to waste time looking for a dealer that can help with poor credit. Thanks to our nationwide network, we’ll look for a dealer in your local area that’s able to help bad credit borrowers get the auto loans they need. Get started by filling out our free car loan request form. There’s never a fee or obligation, our form is secure, and we’ll get to work right away.