Why Bad Credit Car Lenders Require Down Payments

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Even with poor credit.

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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.


, - January 9, 2019

When you need auto financing with bad credit, lenders look beyond your credit score to help approve you for a loan. There are several requirements you have to meet, but one that seems to really worry people is the down payment. But it shouldn't be feared. In fact, making a down payment can be a great way to save money over the course of your loan.

Why Down Payments Save You Money

The reason subprime lenders require a down payment is to offset some of their risk. It also helps show them how serious you are about investing in your own vehicle. Borrowers who make an investment in their loans are more likely to successfully complete them.

Even though it can be hard to save money, your lender doesn’t want you to break the bank. In fact, the typical down payment requirement for someone with bad credit is $1,000 or 10 percent of the car’s selling price, whichever is less.

By making a down payment, you're reducing the amount you need to finance, which saves you money down the road. Auto loans are simple interest loans, which means interest charges accumulate daily, based on the amount owed. So, the less you borrow, the lower the interest charges.

Making a Down Payment

If saving up the kind of cash a lender is asking for is why you're worried, you should know that your entire down payment doesn’t have to be in cash. There are a few ways you can meet your down payment requirement:

  • Cash – You can go the old fashioned, straight up cash route. If you start saving before you begin shopping for a vehicle it should be a little easier to come up with the down payment your lender is asking for.
  • Trade-in equity – You can also trade in a car that's in your name. Whether you're still paying on a loan or you own it free and clear makes no difference as long as there's equity in the vehicle (meaning it’s worth more than the loan balance).
  • A combination of cash and trade – You can combine the amount of money you get for your car with cash to come up with the required amount.

In some rare cases, you may also be able to put part or all of your down payments on a credit card, but not many dealers allow this. Also, be careful if you do this – you're going to end up paying interest on your down payment if you don't pay your credit card in full after the payment is applied.

Getting a Car Loan with Bad Credit

In addition to the down payment requirement, lenders typically ask borrowers with bad credit to meet other qualifications that help them decide their creditworthiness. These factors, which deal with income, employment, and residency, give lenders a glimpse into the borrower's ability, stability, and willingness to take on and successfully complete a car loan.

If you're ready to prove to a lender that you're worth the risk for auto financing, but don't know where to find a lender to work with, look no farther. Here at CarsDirect, we work with a nationwide network of special finance dealerships that have to lending resources available to help you get the financing you need. To get started, simply fill out our no-obligation car loan request form, and we'll get to work matching you with a dealer in your area.

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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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