Often, a down payment of $ 1,000 is a standard requirement for a bad credit auto loan. Is this sufficient, however? Much depends on your personal budget and how much interest you are willing to pay when you finance.
Minimum deposit on a used car
If you are a borrower with bad credit and working with subprime lenders or inside funders, you can expect a down payment requirement of at least $ 1,000 or 10% of the vehicle’s sale price. (sometimes the lower of the two). Some dealers who buy here pay here may charge up to 20% of the vehicle’s selling price.
If you are looking to buy a used car for around $ 10,000, then $ 1,000 is a decent down payment. It is widely recommended that you deposit at least 10% of the value of the vehicle to increase your chances of getting approved for a loan and to minimize your interest charges. If you want something more expensive than $ 10,000, you might need more than $ 1,000 down payment, but that depends on your personal situation.
If you have $ 1,000, that might be enough to qualify for a car loan from a bad credit car lender – if you meet their other requirements. We recommend that you try our car loan payment calculator to see the impact your down payment amount can have on your monthly payment.
Advantages of down payments
Putting money aside reduces the cost of financing. Borrowers are recommended to put money on a vehicle in order to minimize interest charges and be able to afford a shorter loan term, as most auto loans use a simple interest formula.
Simple interest means that your interest charges add up daily based on your loan balance. The higher your loan amount, the more interest will accrue and the higher your interest rate, the more you are charged for borrowing money. By putting money aside, you save money because you borrow less and therefore you accumulate less interest costs.
Down payments can also broaden your vehicle selection as a bad credit borrower. If you are financing a vehicle with a subprime lender, your maximum monthly payment is determined before choosing a car. By having more money to bring, it can open up your car options.
Why are down payments required with bad credit?
Down payments are also called skin the game, and they show a lender that you are able and willing to put some of your own money on the line to qualify for a car loan. In addition, down payments reduce the chances of the loan going into default, since you have invested some of your own money, and it reduces the total amount you have to finance.
Subprime lenders – indirect lenders signed up with special financing dealers – often help borrowers cope with credit problems. They can often work in credit situations such as bankruptcy and bad credit due to past financial difficulties, and without credit borrowers. However, they still almost always require a down payment to get the loan off the right foot.
ACE tip: The trade-in value is also considered as a down payment on your next vehicle purchase. If you have a trade-in that you own or have equity, it can help you put in more money or meet a car lender’s down payment requirement.
Ready to hit the road?
Preparing for what a lender is going to charge in terms of a down payment is a great place to start your car buying journey. However, it can be difficult to find a lender who can help you with credit issues. Here has Auto Express Credit, we want to help you through the process through our nationwide dealer network.
Over the past 20 years, we have developed a network of Specialized Finance dealerships that help borrowers with unique credit situations get the car loan they need. To be matched with a dealership in your area, complete our free auto loan application form! There is never a purchase obligation, so get started now!