Down Payment Benefits on a Bad Credit 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.


, - November 3, 2020

When you're attempting to qualify for a bad credit car loan, it can be easy to focus on the parts that don't line up with your expectations. Though, the benefits of an auto loan for credit-challenged consumers far outweigh the drawbacks, especially when it comes to your down payment.

Down Payment Benefits

There are several benefits to making a down payment on a bad credit car loan. These may include:

  • Lowering the amount you borrow
  • Saving money on interest charges
  • Qualifying for a larger loan amount
  • Qualifying for a lower interest rate
  • Allowing for a shorter loan term
  • Shortening or eliminating time spent with negative equity

As you can see, a down payment can do a lot for you when it comes to an auto loan. The more money you put down, the less you have to borrow. Even if a lender doesn't ask for a down payment – which is rare, even with decent credit – it's in your best interest to make the most of your car loan by making a down payment. What a down payment can do for you specifically depends on your situation, of course.

Down Payments and Bad Credit Car Loans

A down payment is required almost 100% of the time for a bad credit auto loan. As a borrower who needs a bit of help outside traditional channels of lending like banks and credit unions, there’s often a bit of a trade-off for getting an approval with poor credit: namely, the need for a down payment and a higher interest rate.

The good news is that the required down payment can actually offset the higher interest charges – the more you put down up front, the more you save in the long run.

The specific amount required varies by lender and your situation, but most subprime lenders that work with bad credit borrowers generally require at least $1,000 or 10% of a vehicle's selling price. The amount you're asked to use as a down payment may vary, but the fact remains that making a bigger down payment can be a good choice.

How Big of a Down Payment Should I Make?

There's no hard-and-fast rule of just how much money you should put down, other than the lender's requirement. However, our recommendation is to put down the most you can comfortably afford without totally draining your savings. According to dealerships we have surveyed from our nationwide network, the average down payment amount is typically around $2,000.

There used to be an old adage that a down payment of around 20% was recommended when purchasing a new car, and around 10% for a used vehicle. These numbers may sound OK on the surface, but they don't always hold water anymore if you do the math.

For example: the average loan amount for a new car in today's market is around $36,000, according to Experian. If you want to make a down payment of 20% on that amount, you're looking at about $7,200! It can be really hard to come up with cash like that.

Some down payment costs can be lowered by opting for an affordable, reliable used vehicle. And, using a trade-in with equity can also help to cover some of the money you may need.

Even though a bigger down payment is recommended, especially for bad credit borrowers, the rising cost of cars makes a 20% down payment pretty unrealistic these days. According to our dealer’s data, the average down payment they’re seeing is only 5% of Experian’s average new car loan amount figure.

Where Can I Get a Bad Credit Auto Loan?

When it comes to a bad credit car loan, you may have more options than you realize as long as you're applying with the right kind of lender. Typically, borrowers with less than perfect credit have an easier time working through an in-house financing dealer, or a subprime lender. Both of these types of lenders require a down payment to get your loan started, but an in-house financing dealer is likely to require more than a subprime lender.

In-house financing lots, also known as buy here pay here (BHPH) lots, often skip a credit check when you apply. However, since they're not basing an approval on your credit score or reports, they're more likely to offer you high interest rates and require a larger down payment.

Subprime lenders, on the other hand, do look at your credit score and reports, but they use this information as just part of their approval process. In order to qualify through these lenders, you also need to prove that you have the ability, stability, and willingness to take on an auto loan.

Additionally, when you finance your car loan through a subprime lender at a special finance dealership, you may qualify for a wide range of vehicles including used, certified pre-owned, or even affordable new cars.

Finding the Right Dealership

Down payments are a general requirement for getting an auto loan, especially when you're struggling with less than perfect credit. Now that you know they're more of a benefit than a setback, you can start saving for your next car loan down payment. If you're ready to take the plunge and get into your next auto loan, we want to help!

Here at CarsDirect, we’re teamed up with a nationwide network of special finance dealers that spans the country. Let us save you the hassle of finding a dealership on your own. Simply fill out our free car loan request form, and we'll get to work matching you to one in your area!

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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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