Is a Delayed Down Payment a Good Idea?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - November 10, 2020

If you’re trying to get an auto loan but you don’t have a down payment, some dealers may tell you not to worry about the money down right now. While this sounds great in theory, be wary, as it may not be the best idea.

How Delayed Down Payments Work

Many borrowers find it difficult to come up with a sizable down payment to get into a vehicle, especially if the need for another car is sudden.

If you have bad credit, a down payment is typically a requirement to qualify for financing, and it’s something that’s paid up front. It tells lenders that you’re willing to invest your own money into the vehicle, and borrowers who have down payments have a higher chance of completing the auto loan successfully. However, coming up with a couple thousand dollars for a down payment can be hard in a pinch.

That’s where delayed down payment comes in. A delayed, or deferred, down payment is a down payment that’s pushed back with the promise to be paid at a later date. The dealership has you sign an agreement that says you’ll pay the agreed down payment balance in installments, usually within a few months, instead of having you hand over the entire amount up front.

For example, say a dealer can get you into a specific car if you have $3,000 to put down. If you only have $2,000, they may tell you, “It’s fine, we’ll do a hold-check for the rest.” You would get the vehicle, but you still owe the $1,000 down.

The dealership then creates an agreement that you sign, promising that you can pay the remaining down payment at a later date, with two post-dated checks for $500 to cover the remaining $1,000. Then, the dealer typically asks you for a credit card number to be run if your checks bounce.

While this sounds like a good deal on the surface because you can get the car that day and worry about the rest of the down payment later, it can create issues for you down the line if you don’t have the cash at the due dates.

Why a Delayed Down Payment Is a Bad Idea

A delayed down payment agreement can often put borrowers over their heads at the very beginning of the auto loan.

Say you sign the deferred down payment agreement and get the vehicle. The next month rolls around and you don’t have the cash for the delayed down payment agreement. What happens now?

Most likely the dealership runs your credit card for the amount if your post-dated check bounces. Now, you’ve added that amount to your credit card debt – and usually credit card interest isn’t cheap. If your credit card is maxed out, what’s next if it gets declined? Typically, the repo man.

Since you failed to follow through with the down payment agreement, you’re likely to face a repossession soon after you get the car. Not only does this mean you lose the vehicle you just got, but now a repossession is listed on your credit reports, too.

Most auto lenders don’t work with borrowers who have a repossession that’s less than a year old. Repos lower your credit score, which could impact your ability to get another car for a long time.

Avoiding Deferred Down Payments

To avoid deferred down payments, simply don’t say you can put down more than you can actually afford. Adding auto insurance, a vehicle payment, and a down payment “payment” is a lot of bills in a short period of time.

If you believe that you can really make a $500 payment for the next two months, then simply save that amount in the next two months! If you have that much room in your budget, then you can save the cash and have the full down payment amount in hand when you go to the dealer.

If you're really in a pickle and need a car quickly but don’t have the full down payment that’s being requested, then opt for a less expensive vehicle. Rushing into a car purchase and with the promise to make more payments on top of your regular bills and fresh auto loan payment isn’t a good idea.

Don’t be a “worry about it later” borrower. Shop smart, take your time, and work with the right dealership that has the resources you need for your credit situation.

Finding the Right Dealership

It’s tempting to rush into a car loan, and it’s even more enticing when someone says you can worry about the down payment later, but don’t bite off more than you can chew. Choose a vehicle that you can reasonably afford, save for a down payment the old-fashioned way, or use a trade-in.

It also helps to apply through a dealer that’s signed with auto lenders that can work with credit-challenged borrowers. If your poor credit is getting in the way of a car loan approval, try going through a special finance dealership that’s signed up with subprime lenders. They assist borrowers in all sorts of unique credit situations, and we want to locate one for you.

Here at CarsDirect, we’ve created a network of dealers that spans the whole country. Get matched to a dealership near you by filling out our free auto loan request form. There’s never an obligation to buy, and we’ll do the looking for you.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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