Are Low Down Payment Car Loans Smart?

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Even with poor credit.

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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.


, - September 28, 2018

Borrowers are always asking if it’s possible to get a car loan with a low down payment. Though it may be possible, it might not be the smartest thing to do.

The Significance of Down Payments

Making a down payment certainly isn’t the most popular part of the car financing process. Borrowers often see even a small down payment as a big burden. The truth is that a down payment on a car loan is one of the best things you can do for yourself.

When a borrower places a down payment on a vehicle, it shows lenders they’re serious about the loan process, and that they’re willing to invest their own money. Down payments reduce the amount borrowed, therefore reducing the borrowers loan to value ratio (LTV), as well as the total interest charges over the loan term. If you use a large enough down payment – typically 20 percent of the car’s selling price – it can also reduce the time your vehicle is upside down in the loan.

Down Payment Amounts

Whether or not a down payment is required generally depends on your credit score and the lender you’re working with. For borrowers with good credit scores (650 and above) lenders may not require much of a down payment, if any. But, if you have poor credit – especially if you need subprime financing – you can typically expect a down payment requirement.

Though specifics vary by lender, most usually require a borrower to put down at least $1,000 or 10 percent of the vehicles selling price, whichever is less. But remember, while getting a car loan with a low down payment can seem like a wise idea, the more money you put down, the better off you are in the long run.

The Benefits of a Larger Down Payment

Instead of searching for a small down payment car loan, opt to put down as much as you can when financing a vehicle. There’s also no substitute for being fully prepared before you start the car loan process – this means doing your research, creating a budget, and saving up for a down payment.

Here are some of the benefits that come from using a larger down payment:

  • Save Money – Any amount you use as a down payment is money you don’t have to finance. Borrowing less money can mean smaller loan payments, and less money paid in interest charges over your loan term.
  • Shorter Loan Terms – Instead of lowering your monthly payment by putting down a significant amount, you can opt to pay off your loan on a shorter schedule. The shorter your loan term, the less you pay in interest charges.
  • Less Time with Negative Equity – Equity is the value of your vehicle compared to how much you owe on your loan. When you owe more than your car’s worth (due to deprecation), you have negative equity. A down payment can shorten the time you spend owing more than your vehicle’s value.
  • Up Your Chances of Approval – If you’re struggling with credit, you’re typically required to have a down payment. Even if it’s not required, a lower LTV resulting from a down payment is a good way to improve your approval odds.

If You’re Ready to Get Financing

If you’ve already prepared a down payment, and are ready to take on a car loan, CarsDirect wants to help. Even if you’re faced with credit challenges, we work with a nationwide network of special finance dealerships that have the lending resources to help people with many types of credit situations. To get the process started today, simple fill out our easy, fast, and free auto loan request form now!

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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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