Cash is king when it comes to putting money down on a car loan, but you may have a few other options you can utilize.
Options for Auto Loan Down Payments
As a general rule, you can't use money or income that you don’t already have to make a down payment on a car loan. This means that getting a loan specifically to pay a down payment is out. Lenders almost always require a down payment that comes from your own money.
This can include:
- Money saved from your own income
- Vehicle trade-in equity
- Tax return refunds
- Stimulus checks
- Stock earnings
- Rental property income
- Money gifted to you (with no obligation to repay)
- Unearned income such as alimony or Social Security
- Money earned from unemployment checks
- Profit from the sales of assets
Here are some things that auto lenders typically don’t accept as a down payment:
- Personal loans
- Cash advance loans
- Credit cards
In some rare cases, a lender may accept a down payment from a credit card. However, this is uncommon and generally not recommended. You eventually have to repay that amount and credit card interest rates can be high. If you can’t repay what you owe on the credit card quickly after using it for a down payment, it could mean paying a lot more interest charges over time. And, to top it off, most lenders simply don't accept credit cards as a down payment, so it’s advised not to plan on this being an option.
Why You Should Have a Down Payment
Do you want a better chance of getting approved for an auto loan? Then come prepared with a down payment!
This is especially true for borrowers with less than perfect credit. A lower credit score can mean a high chance of denial. But down payments can increase approval odds and help get you the vehicle financing you need.
When you’re financing a vehicle, the lender may require “skin in the game” – aka, a down payment. Cash down shows that you’re willing to invest in your success and put some of your own funds on the line when you finance a car. A lender’s biggest concern is your ability and willingness to repay the loan. By fronting some cash, you’re securing the loan with some of your money right now, proving that you’re financially stable enough to save some money for the vehicle.
Aside from proving your chops to repay a loan, lenders also love down payments because they decrease the odds of the auto loan falling into default (when you stop paying). A default and subsequent repossession are costly for a lender, and a hassle for you as well. Down payments lower the amount you need to finance, leading to a lower monthly payment, making it easier for you to repay the loan on time.
How Much Should I Put Down on a Vehicle?
The old standby advice of auto loan down payments has been 10% down on a used car, and 20% on a new one. But with the rising price of vehicles over the last decade, this advice has fallen out of practice somewhat.
Borrowers in our dealer network tend to have an average down payment of 13%. It’s typically recommended that a bad credit borrower put down as much as possible. A larger down payment can give you some negotiation power in terms of your interest rate, widen your vehicle options, and increase your approval odds.
How much you should put down is unique to you. But when you have bad credit, you can expect a down payment requirement of at least $1,000 or 10% of the vehicle’s selling price if you’re working with a subprime lender. Subprime lenders specialize in assisting borrowers with unique credit situations and they’re available at special finance dealerships.
Let’s Get Car Shopping!
At Auto Credit Express, we know that preparing for a car loan is only one part of the car shopping journey. For many bad credit borrowers, finding a lender that can work with your unique credit situation can be a big hassle. We want to guide you to a dealership that’s signed up with subprime lenders so you can focus on preparing for your next auto loan and skip the search for a dealer.
Get started immediately by filling out our free auto loan request form. We’ve gathered a nationwide network of special finance dealerships and we’ll look for one in your local area with no obligation.