This Is Why Bad Credit Auto Lenders Require 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.


, - October 2, 2019

Did you ever wonder why auto lenders are always asking you for a down payment? Even though you constantly see commercials and hear ads that say there are no money down deals available, those aren’t for everyone. This might seem like a letdown, but you shouldn’t look at it that way. Let’s check out why bad credit car lenders require down payments and why that’s actually a good thing.

What’s a Down Payment For?

Making a down payment on an auto loan lets the lender know you’re serious about investing in your own success. This speaks to your willingness to participate in your loan, and shows the lender that you’re ready to do what it takes to get approved for a car loan.

Why Aren’t All Down Payment Amounts the Same?

Down payment requirements are based on several factors, including your credit and the vehicle’s selling price. If you have good credit, lenders can see from your history that you seem to have no trouble paying back loans. This may result in them requiring no down payment, or less of one than you'd need with a shakier credit profile.

With bad credit, however, lenders don’t get that same sense of confidence looking at your credit reports, and therefore usually require you to invest your own money in the loan up front.

Depending on the lender you’re working with and the car you’re purchasing, your down payment amount can vary. If you’re working with a bad credit auto lender, you can typically expect a down payment requirement of $1,000 or 10% of the vehicle’s selling price, whichever is less.

Will a Different Lender Require Less of a Down Payment?

While a different lender may require a different amount, people with bad credit are generally required to make a down payment on a car. One of the reasons why is that bad credit borrowers typically require special lenders called subprime lenders in order to get approved for an auto loan.

Subprime lenders are prepared to help people with less than perfect credit, but a down payment is one of several qualifications subprime lenders use to look beyond your credit score when qualifying you for a car loan.

They do this because these lenders want you to be successful with your auto loan – if you aren’t successful and default on your loan, it’s as much of a problem for the lender as it is for you.

Down Payments Are a Good Thing

A down payment allows you to lower the monthly payment, as well as the principal of your loan, which saves you money on interest charges over the loan term. Because car loans are simple interest loans, interest accumulates daily based on your principal – the amount you owe on the loan without added interest. So, the less you have to borrow, the better.

Down payments can also help offset depreciation, and shorten the time you spend with negative equity. In this case, a larger down payment lowers the loan balance, reducing (or possibly even eliminating) the time you owe more on the loan than your vehicle is worth.

It can be hard to think about saving money for a down payment. However, down payments don’t have to be paid in cash alone. You can also make a down payment with trade-in equity, or a combination of trade-in equity and cash.

Finding a Bad Credit Auto Dealer

Now that you know why bad credit auto lenders require down payments, all you have to do is find one to work with. No need to worry about how to do that, though, because CarsDirect has you covered.

We work with a large network of special finance dealerships across the nation that have the lenders you need for a bad credit car loan. Let us help get you connected to one! Start the process right now by filling out our fast, free, and easy auto loan request form, and we’ll get to work matching you with a local dealer.

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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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