Down Payment Options for a Bad Credit Auto Loan

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - November 21, 2019

When you finance a car with a bad credit auto loan, you’re going to find that there are some extra requirements to meet. This means providing documentation such as proof of income and residency, for example, but it also means you typically need to make a down payment; There are different down payment options available, and we’re here to explain what they are.

3 Down Payment Options

Down payments are generally required so that a lender knows you’re serious about successfully completing the loan, and are willing to invest your own money into it. With bad credit lenders, or subprime lenders, you’re usually required to make a down payment of at least $1,000 or 10% of the vehicle’s selling price, whichever is less.

To meet the down payment requirement, you can do one of three things:

  1. Pay with cash – If you have the cash, you can simply pay out-of-pocket.
  2. Use trade-in equity – If you have a car that has equity, meaning that it's paid off or worth more than the loan balance, you can trade it in and apply the money toward the down payment.
  3. Use a combination – If you want to make a larger down payment, or trade-in equity doesn’t cover the minimum, you can add cash to the equity.

Is a Large Down Payment Worth It?

While it’s important that you at least meet the minimum down payment requirement, adding more money up front decreases the overall cost of your loan. It’s not something you have to do, but we recommend making the largest down payment you can comfortably afford if you have bad credit.

Not only do you lower the monthly payment with a bigger down payment, the total amount of interest charges you pay decreases. This is a big deal if you’re dealing with bad credit, since you’re more than likely going to have a higher than average interest rate.

For example, let’s say you’re looking to finance your next vehicle through a subprime lender. You want to finance $17,000 for 60 months, and were approved at an interest rate of 14%. In addition, you have a car that’s worth $2,000 you can trade in.

Here's what your auto loan would look like with different down payment amounts:

Down Payment Monthly Payment Total Interest Paid
$0 $396 $6,734
$2,000 (trade-in) $349 $5,942
$3,400 (20% down) $316 $5,387
$4,000 (trade-in plus $2,000) $302 $5,149

The more money you put down, the more you end up saving in interest charges. It may feel like a waste of money in the beginning, but the numbers don’t lie – a larger down payment truly helps you in the long run. However, it’s important you don’t make too big of a down payment; you don’t want to put yourself in a financial bind just to save money on your car loan. Even if you only make the minimum down payment, it still helps.

The Bottom Line

Down payments are typically required with bad credit auto financing. It’s important you plan ahead for one, and you can do so by using our Car Loan Calculator. From there, you can see your estimated finance range, and even see a list of vehicles that fall within this amount.

Once you’ve done some number crunching and feel ready to start the car buying process, CarsDirect is here to help with that. We work with a nationwide network of special finance dealers that have the lending resources you need to get an auto loan even if you're struggling with bad credit.

By filling out our free and easy car loan request form, we can begin connecting you to a local dealership that can help.


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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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