Personal Loans Can't Be Used as Down Payments

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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.


, - November 15, 2017

Potential borrowers often ask about obtaining a loan to help them cover their down payment. Unfortunately, a borrower can’t use a personal loan for this.

A borrower can only pay a down payment in one of two ways: cash or trade-in equity. The funds must be from the buyer, and any vehicle used as a trade-in must be in the borrower’s name. Technically, there’s a third way, but it’s just a combination of options one and two. Let’s break this down, shall we?

Your Options:

  • Cash: The amount a consumer will need for a down payment varies by lender. A good rule of thumb for an effective down payment is to put down at least 20 percent of the vehicle’s selling price. For a subprime auto loan, lenders usually accept $1,000 or 10 percent, whichever is less.
  • Trade-In Equity: If a consumer has a vehicle to trade in and they owe less than the vehicle is worth, they may be able to use any equity toward a down payment. After paying off the loan, any actual cash value left can then be applied toward the down payment.
  • Combining sources:The final way of coming up with a down payment is a combination of cash and trade-in value. This is possible as long as the total amount is equal to, or more than, what a lender is asking for.

Knowing Where to Go

Being prepared with a down payment is a key step that can lead to successful auto loan completion. Another part of the equation is knowing where to go for the right loan.

At CarsDirect, we work with an extensive network of dealers who have the resources to help people in many types of credit situations. Let us guide you toward a local dealer. Fill out our no-obligation online 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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