How to Make Your Auto Loan Cheaper

Get Car Financing
Even with poor credit.


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.

, - May 16, 2019

When you have bad credit, you can expect the overall cost of a car loan to be higher. Bad credit consumers typically see an interest rate in the double digits, but the good news is you can lower the total cost of the loan with a sizeable down payment.

Making an Auto Loan Affordable with a Down Payment

With bad credit auto financing, you generally can’t avoid making a down payment. Lenders like to see your own money invested in the vehicle, and just how much you need to put down depends on the lender and sometimes the car (if you go through a buy here pay here dealer). Subprime lenders usually require a minimum down payment of $1,000 or 10 percent of the vehicle’s selling price, whichever is less.

You can meet the minimum down payment requirement and be done, but you should put more money down if you can. A larger down payment increases your chances of getting approved and helps you save money on the overall cost of the loan by reducing the amount you have to borrow. If you want to finance the lowest amount possible, a sizeable down payment could make the loan even more affordable.

Let’s look at how this is possible with a common example:

Jody is on a tight budget and doesn’t have the best credit. She finds a car she wants selling for $8,500, and was approved at an interest rate of 18 percent. Because she doesn’t plan on keeping this vehicle forever, she decides to finance it for 36 months. She also has a trade-in worth $2,000 that she could apply toward the down payment. Here's how her auto loan would look with different amounts of money down (calculations don't include tax, title, or license fees):

Down Payment Monthly Payment Total Interest Paid
$0 $307 $2,563
$1,000 (typical minimum) $271 $2,261
$1,700 (20% of car's selling price) $246 $2,050
$2,000 (trade-in amount) $235 $1,960
$3,000 (trade-in amount plus $1,000) $199 $1,658

If Jody didn’t want to use cash for the down payment, her trade-in can get her to less than $2,000 in interest charges and a monthly payment under $250, giving her plenty of savings. But when she adds her own cash on top of the trade-in, she saves even more on the overall cost of the loan.

Coming Up with a Down Payment

Now that you know you typically have to make a down payment with a bad credit car loan, and that the more money you put down the cheaper your loan is, how can you come up with the down payment? You have three options:

  • Use your own cash – If you don’t have a vehicle to trade in, your only option is to make a down payment using cash. Make sure you prepare beforehand. Aim to save up at least $1,000, since this is the minimum most subprime lenders ask for.
  • Use your trade-in equity – If you have a trade-in without negative equity (when your car is worth less than what you owe on the loan), you can certainly use its value as money down.
  • Use your trade-in equity and your own cash – If the value of your trade-in doesn’t meet the minimum requirement, or you want to make an even larger down payment to make the loan even more affordable, you can use the trade equity plus any cash you want to add.

The Bottom Line

The more money you put down, the less your auto loan is going to cost you. You usually need to make a down payment if you have poor credit, so you should be as prepared as possible with one ready to go.

If you have your down payment but can’t find a lender to work with, we want to help. CarsDirect is teamed up with dealerships all around the country that specialize in getting buyers with imperfect credit financed. We'll work to match you with a dealer in your area if you get started by submitting our online car loan request form.

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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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