Does a Down Payment Improve Chances of Loan Approval?

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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.


, - January 3, 2018

A down payment doesn’t equal instant approval when it comes to auto financing, but it does show a borrower’s willingness to make an investment toward successful loan completion.

Down Payments Aren’t One Size Fits All

Depending on the source of a borrower’s auto financing, down payments will always vary by the specific loan situation to which they apply.

  • Standard Financing: For people with great to excellent credit, it’s possible they may not have to make a down payment depending on their situation, the dealership, and the lender’s requirements.
  • Subprime Financing: For borrowers with bad credit, subprime lenders typically require a minimum of $1,000 or 10 percent of the vehicle’s selling price, whichever is less.
  • Buy Here Pay Here: Someone who goes to a BHPH dealership will always be required to make a down payment. The amount will vary depending on the vehicle.

The Benefit of Big Down Payments

In most cases, the larger the down payment a consumer is able to make, the more likely they are to successfully complete a car loan. Research shows that people who make an initial investment are less likely to “throw away” that money.

Strive for 20 percent of a vehicle’s selling price as a down payment. Amounts of this size or greater will reduce the time in which a vehicle is “upside down” – carrying negative equity. It’ll also reduce the principal, saving the buyer money in interest charges over the term of a loan.

A lower amount financed also means a lower loan-to-value ratio (LTV). LTV is the loan amount compared to the vehicle’s value, and it’s one of the things lenders look at when assessing risk.

If other factors are in order, a lower LTV may be just the help a borrower needs. Depending on the lender, a large down payment may put people with unique situations – such as being on social security or if a borrower is on the cusp of loan qualification – over the edge for approval.

Improve Your Chances for Success

So, does a down payment improve your chances of auto loan approval? The truth is, while it won’t guarantee approval, a down payment can only help when it comes to financing your next vehicle. CarsDirect wants to help you on your journey toward successful auto loan approval. Whether you need advice on managing your auto loan, or you’re looking for the hottest deals on cars, we want to be your go-to source for car and financing advice.

If you’re struggling with where to begin, or need a special finance dealer that can work with your particular credit needs, let CarsDirect be your first step. We work with an extensive nationwide network of dealers that have the lending resources available to help consumers with many types of credit challenges. It’s free and simple to get started, just fill out our simple online auto loan request form 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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