How Big Should My Down Payment Be With Bad Credit?

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - November 25, 2020

Did you know that down payments are required with most bad credit auto loans? You can always put down more than is required, but you must at least meet the minimum amount to get into a car loan. We cover average down payments for subprime auto loans, and explore the many benefits of putting cash down.

Car Loan Down Payment Requirements

The price of the vehicle you’re looking at can influence your down payment amount. Subprime lenders typically require a down payment of at least $1,000 or 10% of the car’s selling price, sometimes whichever is less.

So, what are borrowers actually putting down when they get a subprime auto loan? After surveying dealers in our nationwide network, we found that subprime borrowers are averaging a down payment of around $2,000. The average amount financed is around $23,000, which means borrowers are putting down around 12% to 13% of their vehicle’s selling price.

Subprime borrowers seem to be going over the common subprime borrower down payment requirement – which is great! Down payments have many benefits, besides helping you get approved for a car loan. Not to mention, the more you put down, the more benefits you can enjoy!

Down Payment Benefits

When you have a poor credit score, a common worry is a high interest rate that’s going to cost you tons of money when you take on a vehicle loan. However, down payments can lower interest charges!

The reason is simple: nearly every auto loan uses a simple interest formula. This means your interest charges accrue daily – the more you owe, the more you pay in interest charges. To lessen your interest charges, having a down payment helps because it lowers the amount you need to finance.

Additionally, down payments reduce your monthly payment. Since you’re financing less, you may even be able to shorten your loan term, which also lowers interest charges. Since simple interest adds up daily, the more you owe for longer, the more you pay as well.

Without a down payment, you may run into issues getting approved for a car loan with less than perfect credit. Subprime lenders require down payments because they don’t use only your credit score as the sole determining factor of your auto loan approval – they also rely on ability, stability, and willingness to pay.

Willingness to pay refers to your down payment amount, also called having skin in the game. Putting your own money down lowers the chances of default, and increases your odds of following through the car loan.

Trade-Ins Can Help You With a Down Payment Requirement

Down payments are vital to getting into an auto loan with bad credit. They can be difficult to save for, but, luckily, trade-ins can help, too.

A trade-in’s equity can be used to cover or help meet a down payment requirement. Subprime lenders don’t require that the minimum amount be met with just cash, you can also use a trade-in with equity, or a combination of a trade-in and cash.

If you have a vehicle it could be a useful tool to get you on the road to your next car loan, as long as it's worth more than you owe on it. To see how much your current vehicle could help, visit websites like Kelley Blue Book to check out your car’s estimated trade-in value. If you still owe on your auto loan, subtract the loan balance from the estimated trade-in value to get a quick estimate on how much your vehicle can contribute to your total down payment amount.

Remember that the dealership is the one that determines your car’s actual trade-in value, and the estimates you get online are just that: estimates. However, some dealers are willing to negotiate on trade-in offers, so it helps to be armed with estimates from various sources.

Finding Subprime Auto Loan Resources

Here at CarsDirect, we know what subprime lenders are looking for because we’ve created a nationwide network of dealerships that are signed up with them.

To get matched to a dealer from our network that has the resources to work with your credit situation, fill out our auto loan request form. There’s never an obligation to buy, and our form is secure and free. Get started today!


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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