How to Buy a Car with Bad Credit and No Down Payment

Get Car Financing
Even with poor credit.

By

Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


, Contributing Writer - July 6, 2018

Lots of car buyers with bad credit want to know if they can get an auto loan with no money down. While buying a vehicle with no down payment sounds tempting, qualifying for a zero down car loan with a poor credit score typically isn't possible. Lenders have stricter requirements when your credit is struggling, and a down payment is usually needed. At the same time, car buyers with bad credit should be aware that putting money down can be a good thing that helps them save money in the long run.

Bad Credit Down Payment Requirements

Just about every subprime auto lender – the kind who are willing to approve borrowers with poor credit – asks for a down payment. While you may have heard an advertisement for zero down auto loans, a look at the fine print will show you that these offers are for borrowers with great credit who meet specific requirements.

The lowest down payment requirement subprime lenders ask for is typically $1,000 or 10 percent of the car's selling price, whichever is less, though the actual amount can vary from lender to lender. Your down payment can be in cash, trade-in equity, or a combination of the two. Most subprime lenders require the cash to be from your own funds, so you can't use borrowed money or cash back from a manufacturer rebate on a new car to meet the requirement.

Even in-house financing car dealerships – which typically don't check credit, making them good places to get financed with bad credit – usually require a down payment, though the minimum amount can also vary.

Why Bad Credit Lenders Require a Down Payment

The reasons subprime lenders require a down payment are pretty straightforward. Lenders make decisions based on risk. When somebody with bad credit asks to borrow money, it's more of a risk than lending to someone with good credit. So, lenders look to offset this with certain requirements, which typically include a down payment.

Putting money down on a car means you're investing your own money, which sends the right message to the lender. They see it as a way to increase the chances you’ll pay back your loan, as it’s less likely you’d walk away from a loan after putting your own money down.

A down payment can also reduce the amount you have to borrow, which makes lenders more likely to approve you – but that's not the only benefit.

Benefits of Putting Money Down on a Car Loan

Outside of improving your chances of getting approved, here are some of the advantages of a down payment:

  • Lowers your monthly payment because it reduces the amount of your loan.
  • Can make shortening the loan term possible, which will help you save money in interest charges in the long run as you pay it off faster.
  • Will reduce the amount of time you have negative equity. Negative equity, or being upside down or underwater, is when your car is worth less than what you owe on the loan. Being upside down makes it more difficult to sell, trade in, or refinance your car, so it's a situation you should try to avoid.
  • Reduces the amount you pay in interest charges because it lowers your principal balance from the start. This is far and away the biggest benefit a down payment offers to borrowers with imperfect credit. Bad credit car loans come with higher interest rates, so a down payment can make a huge difference in what you end up paying overall.

The larger your down payment, the more these benefits are increased, so it’s worth it to save up for a down payment in the long run.

Finding Financing with Bad Credit

If you have bad credit, a down payment is nearly always required; zero down offers are rarely applicable to poor credit customers. Even though it's a requirement, putting money down works to your advantage, so you're better off with one in the first place.

Another obstacle to getting a car loan with poor credit is finding a dealership that's able to work with you. CarsDirect is here to make this faster and easier with our quick and free auto loan request form. We'll work to connect you with a local special finance dealership, so go ahead and get started today.

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, Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


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