Using a Loan for Your Down Payment: What Car Buyers Need to Know

Get Car Financing
Even with poor credit.

By

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 19, 2018

There are options when you need a down payment for a car, but a personal loan isn't one of them. Typically, cash or trade-in equity are the only ways to make a down payment. In some cases, you might be able to put some of your down payment on a credit card, but this is a rare practice (and not very wise).

What Happens if I Use a Loan for a Car Down Payment?

If you're struggling with credit issues and you're required to make a down payment on an auto loan, taking out a personal loan to cover this cost isn't the answer. Not only do lenders not accept loaned funds as down payments, but you now have two loans to pay back.

You may be thinking that you don't have to tell the lender the money is from a loan, but they’re going to figure it out anyway. The personal loan shows up on your credit reports, so the subprime lender can see it in black and white. Having a personal loan on your credit also adds to your debt, and the additional payment may be enough to throw your debt to income ratio off, reducing or eliminating your chances of getting a car loan.

Additionally, lenders like to know that you've invested your own money, and it shows the lender your serious about successfully completing the loan.

What Can I Use for a Down Payment?

As a bad credit car buyer, you're typically required to have a down payment of at least $1,000 or 10 percent of the vehicle's selling price, whichever is less. You can do this with cash, trade-in equity, or a combination of the two. You can sometimes use a credit card for a partial down payment, but it costs you more because you end up paying interest on the credit card debt, and most dealerships don't like to pay credit card fees.

Remember, if you're using a trade-in for your down payment, the car has to be in your name. If you still owe on it, just the equity can be used toward the down payment.

The Bottom Line

Not only does a down payment show a lender you're willing to put your own money on the line, it’s also a great tool for saving money in the long run. The bigger your down payment, the less you have to borrow, and borrowing less money means paying less in interest charges over the loan term. Even though you can't use a loan to pay it, a down payment is worth it in the end.

If you have your down payment ready, but don't know where to start your car shopping or lending process, start here at CarsDirect. We work with a nationwide network of special finance dealers that can help people in many credit situations get the vehicles they need. Start now by filling out our free, easy, and no-obligation auto loan request form today.

Need a Car Loan?

It only takes a minute.

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.


Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.