Down Payments Are Required for Subprime Car Loans

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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.


, - June 18, 2020

Struggling with credit issues is bad enough, why would you want to scrape together your hard-earned cash to make a down payment on a car loan? There are a lot of reasons, actually. It turns out that putting money down is one of the best things you can do when taking out an auto loan.

Bad Credit Car Loans and Down Payments

Down payments are normally required for subprime car loans, but it's not just for the benefit of the lender. Putting money down helps you when it comes to qualifying and managing vehicle financing. It lowers the overall cost, can reduce or eliminate negative equity, and may even help you qualify for a better car.

Typically, subprime lenders that work with credit-challenged borrowers require a down payment that's a minimum of $1,000 or 10% of the vehicle's selling price. However, it's to your benefit to put down as much as you can afford.

Let's look at the benefits you can gain by putting money down:

  1. Saves money – When you make a down payment, you're reducing the amount you borrow. The less you borrow, the lower your interest charges and the more you can save overall.
  2. Lowers payments – When you borrow less, your monthly payment also decreases, even if your loan term stays the same.
  3. May lower interest rate – In some cases, a large enough down payment may allow you to qualify for a lower interest rate when you borrow less.
  4. May help qualify you for a different car – You may open up a whole new avenue of vehicles to qualify for with enough money down. The difference needed to do this varies by lender, but it may not be as much as you think.
  5. Reduces negative equity – Since a down payment means you're borrowing less, it reduces the time your car may have negative equity, where you owe more on your loan than the vehicle is worth.

It's obvious that the key factor a down payment hits is the ability to borrow less. If collecting all that cash is the part still worrying you, don't fret. Your down payment doesn't have to be only in cash.

Making a Down Payment

Down payments can be made in cash, trade-in equity, or a combination of both. If you have a vehicle and are looking to upgrade, using the equity in your current car is a great way to cover the money down requirement, or to add to it and save yourself even more in the long run.

In order to be helpful, there has to be enough value in your vehicle to cover what you owe, with some left over. If you own your car outright, the entire actual cash value (ACV) is equity. If you're still making payments, your vehicle must have a higher ACV than the loan balance. Otherwise, you have negative equity.

Cash and trade-in equity are the most common ways to make a down payment. In rare cases, you may be able to put a portion of your down payment on a credit card, but it's not always worth it since you have to pay interest on your credit card balance.

One thing you can't do in order to satisfy a down payment requirement is take out a loan. Doing this means you're just increasing your debt, which may affect your credit and your chances at qualifying for an auto loan. Additionally, putting your own money or trade-in down shows lenders that you're willing to have some “skin in the game” by investing in your own success.

Ready to Find Your Next Auto Loan?

With your newfound knowledge of how much you could save just by making a down payment, are you ready to jump into researching your next car? If so, we've got you covered right here at CarsDirect. Not only can you research new and used vehicles, we can point you in the right direction for an auto loan.

We work with a nationwide network of special finance dealerships that are teamed up with subprime lending partners ready for you. Bad credit, no credit, or even bankruptcy, we want to help match you to a dealer in your area. Simply fill out our free car loan request form and we'll get right to work for you!

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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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