How Much Money to Put Down on a Car with Bad Credit

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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.


, - August 29, 2018

No one ever wants to think about having to save for a down payment on vehicle. It can be difficult and time consuming to prepare for a car loan by setting aside your hard-earned cash. But the down payment needed may be less than you think.

How Much Should I Put Down?

In some cases, if you have excellent credit you can qualify for a zero down car loan. But let’s face it, not many people walk around with perfect credit. In fact, a lot have less than perfect credit – maybe even downright bad credit. If that’s you, you’re typically not going to be able to get a car loan without putting money down.

Here’s the good news: most subprime lenders – who you’ll need to apply with if your credit is suffering – generally only require a down payment of $1,000, or 10 percent of the vehicle’s selling price, whichever is less. But the higher the down payment, the less you have to finance, so it’s a good idea to put down as much as you can. The larger the down payment, the more you save in interest charges over the term of the loan. This is because auto loans are based on simple interest.

For example: If Doug is financing a vehicle that costs $15,000, for 60 months, with a 14 percent interest rate, and no down payment, the loan accrues interest over the term that increases the total cost of financing. By the time it’s paid off, the loan will cost Doug $20,941. Payments work out to $349 a month.

Let’s assume Doug’s got bad credit, so he pays the minimum requirement of $1,000 down. This means Doug is only financing $14,000. With the same term and interest rate, Doug now pays a grant total of $19,545, meaning he’s saved $1,396 in interest charges with the down payment. Payments are now $326 a month.

But, if Doug saves for a few more months, and uses a down payment of $3,000, or 20 percent of the vehicle’s selling price (recommended minimum for the most savings), the impact is much greater. Now, Doug is only financing $12,000. This means his payment is $279 a month and the total cost is $16,753. He saved $4,188 in interest charges, just by putting money down. Even when you consider the money spent up front as part of the total cost, Doug is still saving $1,188 over the total cost versus no down payment at all.

Use a Trade-in for a Down Payment

Down payments don’t have to be made in cash alone. In fact, if you have a vehicle with enough equity, you may not have to put any cash down at all. You may be able to make your entire down payment with trade-in equity. Typically, down payments can be paid for in cash, trade equity, or a combination of both.

The Bottom Line

If you need a vehicle, be sure to take a down payment into account, too. There’s no substitute for preparing for one ahead of time. If you’ve saved up and are ready to find a car, but don’t know where to go, CarsDirect wants to help. We work with a nationwide network of dealers that have the lending resources to get you the financing you need, even if you’re dealing with poor credit. Just fill out our simple auto loan request form to get started 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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