A down payment is money you pay up front when you buy a big ticket item, such as a car or house. In auto financing, a down payment isn’t always required, but if you have bad credit, a subprime lender is almost always going to require you to put money down.

How Much Should You Put Down on a Car?

Just how much you should put down on your next vehicle depends on a few factors. The first one is your credit score. If you have good credit, you generally don’t have to make a down payment if you don’t want to. But, if you have bad credit, you almost always have to have a down payment. Although the amount varies, subprime lenders generally ask for a minimum down payment of $1,000 or 10 percent of the car’s selling price, whichever is less.

Even if you’re not required to make a down payment, we recommended you do. A 20 percent down payment is ideal, but not everyone is able to hit this mark. Any down payment helps, but the more you put down, the better off you’re going to be. Some benefits of a bigger down payment include:

  • Reduces the size of your loan
  • Lowers your monthly payment
  • Lowers the interest charges
  • Decreases the time you’re upside down
  • Can also allow you to shorten the loan term

How to Make a Down Payment

When planning for a down payment, it’s important you crunch some numbers beforehand. If you have an idea on how much vehicle you can afford and what your interest rate is going to be, you can use our Auto Loan Monthly Payment Calculator. You can then plug in different down payment amounts and see how this affects your monthly payment.

As for coming up with the down payment, there are three options to choose from: you can pay cash, use trade-in equity, or a combination of both. If you plan on using your trade-in as a down payment but it isn't paid off, you can still trade it in. As long as you have equity in the vehicle (the difference between the car’s cash value and the 10-day payoff amount), you can apply all or part of the difference to the down payment. If there’s little to no equity in your trade-in, you need to come up with the cash to cover any down payment requirement.

Looking to Finance a Car?

The down payment requirement with subprime lenders is there to help you in the long run, as it allows you to save money down the road. If you're ready for your next vehicle, Auto Credit Express can connect you to a dealership with subprime lending connections. The dealers in our nationwide network are experts at helping people with less than perfect credit get approved for car loans. Get started by filling out our free and no-obligation auto loan request form today.