5 Benefits of Making a Down Payment on Your Car Loan

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - February 13, 2020

Down payments are one of the biggest ways you can help yourself save money on a car loan. Many people don't like the idea of a down payment and are often upset or caught off guard when one is required to get a loan, which is often the case for borrowers with bad credit. However, these five benefits of making a down payment may change your mind.

Why Are Down Payments Required on a Car Loan?

When you have poor credit, down payments help show lenders that you're willing to invest in your own success by having some skin in the game. Subprime lenders that work with credit-challenged consumers usually require a down payment. Typically, they require you to put down at least $1,000 or 10% of the vehicle's selling price, whichever is less.

Making a down payment makes a lender more likely to approve you because it lowers the amount you're borrowing. However, putting money down comes with more benefits for you than just that.

5 Benefits of Down Payments

Down payments are much more than just a lender requirement when it comes to bad credit auto loans. There are so many ways that putting money down can help you with a loan. Here are five benefits of making a down payment:

  1. Can help with approval – Most subprime lenders require down payments for bad credit car loans. If they're on the fence about approving you, a larger down payment may give your application the boost it needs. In general, putting money down can help you get approved for an auto loan more easily.
  2. Saves you money in interest – When you make a down payment, you lower the amount borrowed, which in turn helps you save money over the course of your loan by lowering the interest charges. The more you can put down, the more you save.
  3. Can lower your monthly payment – When you borrow less, not only can you save on interest charges, you lower your monthly payment.
  4. Offsets depreciation – All vehicles are depreciating assets. This means they lose value over time. Depreciation begins as soon as you drive a car off the lot, and it can't be stopped. However, a down payment can help close the gap between what you owe on your loan and what the vehicle is worth. A substantial down payment also helps shorten (or even eliminate) the time your car spends with negative equity.
  5. May help you qualify for different terms – Sometimes, offering to make a larger down payment than required can help you lower your interest rate, or qualify you for a longer loan term.

Making a Down Payment on an Auto Loan

Now that you know how putting money down can benefit you, it's time to decide how you're going to make it. The good news is that if you can't come up with the cash, you have options for making a down payment.

If you can't come up with the cash to put down, you can also use a trade-in. If there isn't enough equity in your vehicle to cover the entire down payment, you can use a combination of cash and trade-in equity. In rare cases, you may be able to put a portion of a down payment on a credit card, but this depends on your lender, and isn't recommended.

One rule bad credit lenders have is that a down payment has to be your own money. It can't be money you borrow from a loan. This is even grounds for the lender to call the deal off if they found out that's where your down payment is from.

Finding Your Next Car Loan

Once you've got your down payment squared away, it's time to find a lender that can work with your credit situation. If you don't know where to start, let us help. Here at CarsDirect, we work with a nationwide network of special finance car dealerships that help people with poor credit get the auto loans they’re looking for.

The process is free, and there's never any obligation to buy. Let us point you toward a dealer in your area. Simply fill out our car loan request form to get the process started today.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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