When you have bad credit, it usually makes the most sense to work with a subprime lender. These lenders specialize in helping consumers with unique credit situations, and offer car loans through special finance dealerships. One requirement these lenders have is a down payment. Luckily, you don’t always need to make a huge down payment, and you have options for how you can make it.
3 Down Payment Options
The minimum down payment requirement varies by lender. However, most subprime lenders require at least $1,000 or 10% of the vehicle’s selling price, whichever is less. As for how you come up with it, subprime lenders call for you to make a down payment in one of these three ways:
- Cash – You can use cash to make the down payment.
- Trade-in equity – If you have a car that’s either paid off or has equity (worth more than what you owe on the loan) you can apply that as money down.
- Combination – If you have a trade-in that’s paid off or has equity and want to make a larger down payment, or the equity doesn’t meet the lender’s down payment requirement, you can add cash on top of the trade-in.
What about using a credit card? This isn’t always an option, but some lenders may allow you to put at least some of your down payment on a credit card. If this is available to you, be careful. If you make a down payment using your credit card, you’re likely going to end up paying more because of the interest charges on your credit card balance.
Should I Make a Larger Down Payment?
Car buyers often ask if it’s worth making a larger down payment. While we recommend you make the biggest down payment you can comfortably afford if you have bad credit, you don’t have to. However, down payments help you save money, and we’re going to show you how.
If your credit is less than stellar, you’re probably going to be approved at a higher than average interest rate. In fact, it’s not uncommon to get an interest rate in the double digits, and unfortunately, this increases the overall cost of an auto loan.
With a large enough down payment, though, you could save yourself hundreds of dollars in interest charges and lower your monthly payment at the same time.
For example, if you want to finance $13,500 for 60 months at an interest rate of 15%, and are required to make a down payment of at least $1,000, here’s what different down payment amounts do to your loan:
| Down Payment | Monthly Payment | Total Interest Charges |
| $1,000 (typical minimum requirement) | $297 | $5,343 |
| $2,700 (20% of the selling price) | $257 | $4,616 |
| $3,700 (20% plus the typical minimum) | $233 | $4,189 |
The Bottom Line
You don’t have to make a down payment only in cash, since you have other options available. If you have a trade-in, make sure you have equity in it, and also consider making a larger down payment to decrease the overall cost of the loan.
When you’re ready to get the financing process started and have your down payment ready to go, CarsDirect is here to assist. Even if you have less than perfect credit, we help consumers get connected to dealers near them that know how to work with unique credit situations.
Fill out our free car loan request form, and we'll get the process of matching you with a local dealership started right away.