Subprime lenders typically require a down payment. They do this because they like to see that you’re serious about completing an auto loan. Most lenders ask that you to put down a minimum of $1,000 or 10 percent of the vehicle’s selling price, whichever is less. It may feel like you’re wasting money, but making a down payment benefits you in many ways.
4 Down Payment Benefits
Down payments are great and come with more pros than cons. There are major benefits to putting money down on a car loan that you should be aware of:
- Increases chance of approval – To show that you’re serious about taking on a car loan, a substantial down payment can help you get approved, especially if you have bad credit.
- Reduces negative equity – Depreciation is a constant factor with vehicles, and most car buyers face being upside down on their loan at some point. To minimize the impact of depreciation and build equity in the new vehicle more quickly, a down payment does the trick.
- Saves money – Because bad credit car buyers are faced with higher than average interest rates, they'll find that a down payment actually decreases the overall cost of a loan and lowers the interest charges they pay. A down payment may also allow you to shorten your auto loan term, which also helps you save money in the long run.
- Lowers monthly payment – The bigger the down payment, the lower your monthly payment is. Even if the down payment decreases your monthly payment by 10 dollars, it helps in the long run.
Keep in mind that if you’re able to afford a bigger down payment, you should consider putting more than the minimum amount down. With a bigger down payment, your chances of approval get even better, it's easier to build equity, and you can save more over the course of your loan.
How to Come Up With the Down Payment
Now that you know a down payment can benefit you, how do you come up with the money? The good news is you don’t have to limit yourself to paying out of pocket. If you have a trade-in, you can apply the equity toward the down payment requirement. You can also combine out of pocket money and a trade-in if you want to put more money down, or if the trade-in doesn’t satisfy the minimum amount required.
The Bottom Line
Don’t be afraid of the down payment requirement. Subprime lenders know that credit-challenged car buyers need all the help they can get, and that’s why putting money down is a requirement. The down payment is there to help your car loan, not hurt it.
If you’re looking to get approved for an auto loan, you don't have to worry about your credit holding you back when you use Drivers Lane. We work with a nationwide network of dealerships that have the special finance experience necessary. Get started today with our auto loan request form!