Bad Credit and No Down Payment: Car Loans

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - September 30, 2020

If you have bad credit and you don’t have a down payment prepared, getting into a car loan isn’t going to be easy. However, it’s never too late (or too early) to start preparing for bad credit auto financing. We cover what bad credit lenders are likely to ask of you and what’s next.

Car Loans Without Down Payments

When you have bad credit, odds are, you’re going to be asked to have a down payment. Having a lower credit score can make lenders hesitant to approve you for a car loan without some skin in the game. Down payments show that you’re able and willing to take on a loan, and they have a myriad of benefits as well.

It’s been proven that down payments help borrowers complete their auto loans because they lower the amount you need to finance. The less you finance, the smaller your monthly payment, the less interest charges you accrue, and, often, the quicker you can pay off the vehicle.

Down payments make sense for any borrower, regardless of credit score. However, they’re required if your credit is worse for wear. As for how big of a down payment you’re likely to need, expect a bad credit car lender to require at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever is less).

The down payment amount could also depend on the selling price of the car, your budget, and what your credit reports say about your borrowing history.

Tips for Saving a Down Payment

The less expensive of a vehicle you aim for, the less cash you need for a down payment. Borrowers are typically advised by personal finance experts to put down at least 10% on a used car and 20% down on a new one.

It’s usually recommended that bad credit borrowers opt for a used vehicle, since they’re generally cheaper than brand-new ones. It’s a good rule of thumb to stand by so you can start saving with an amount in mind.

You can always put down more than the minimum amount required, too, which lowers your monthly car payment and overall cost even more.

Here are some quick tips to get you started on saving for a down payment:

  • Deposit savings automatically – Have a set amount scheduled to come out of your checks each month to deposit into a savings account. This way, you won’t have to put the money away yourself, or be worried about forgetting. Additionally, the money is safe and saved, and doesn’t have a chance to be eaten up by monthly expenses or splurges.
  • Find a high-yield savings account – Most savings accounts have an annual percentage yield of around 0.5% to 1%. If you can find one offering a higher rate, then take advantage of it and place your savings in there to passively build up your cash.
  • Consider trading in your current car – If you don’t think you’re going to be able to save a lot of cash in a short period of time, consider trading in your current vehicle. Trade-ins with equity can cover or help meet down payment requirements.

While you’re saving for a down payment requirement, you can also work on gathering the rest of the requirements a lender is going to ask for.

Often, documents needed include: computer-generated check stubs; phone bill in your name; utility bill or bank statement in your name; valid driver’s license; and a list of around five to eight personal references. Your auto lender may need more information to get a better picture of your financial health, but those are the basic documents you should expect to need.

What bad credit lenders look for in these documents is stability. A stable borrower is likely to have a higher chance of completing a car loan. So, the longer you’ve lived in the same area or been at the same workplace, the higher your chances of approval generally are.

Where Are Bad Credit Auto Lenders?

Bad credit auto lenders, called subprime lenders, are signed up with special finance dealerships. Instead of applying directly with the lender, you work with the dealer's special finance manager. However, driving all over town and hoping to find a dealership for your credit can be a hassle – so start right here, online with us at CarsDirect.

We’ve already done the hard work of finding the special finance dealers around the country. To get matched to a dealership near you that has the bad credit lending resources you need, complete our free car loan request form. It’s secure, carries no obligation, and we’ll get right to work for you!

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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