It is possible to buy a car with no money down, but usually only if you have great credit. Lenders that work with bad credit, such as subprime lenders or buy here pay here dealerships, typically require borrowers to put money down.
Why a Down Payment Is Important
Making a down payment on an auto loan may feel like a waste of money initially, but it actually helps more than hurts you. Any amount helps – regardless of how much money you put down.
A down payment lowers your monthly payment, and decreases the overall cost of your car loan. This is a huge advantage if you’re dealing with bad credit, since you're probably going to get a higher than average interest rate.
As for how much is required, it depends on the lender you’re working with. Subprime lenders – those that offer loans to bad credit borrowers and work through special finance dealers – usually ask for a minimum down payment of $1,000 or 10% of the vehicle’s selling price, whichever is less.
Buy here pay here dealerships – who are both the dealer and the lender – almost always ask for a down payment, but the amount can vary widely. Generally, the needed amount of money down depends on the cost of the car you're buying.
Down Payment Options
Now that you know what the basic down payment requirements are, how can you come up with one? You have three options to choose from:
- Cash – You can cough up the money needed using your own cash.
- Trade-in equity – If you have a vehicle you want to trade in, and you have equity in it (meaning it's worth more than the loan balance), you can apply the equity as a down payment.
- Combination of both – If you want to put more money down, or your trade-in value isn’t enough to meet the minimum required, you can use both trade-in equity and cash.
A good rule of thumb if you have bad credit is to make the largest down payment possible. As we mentioned above, you save more money in the long run with more money down, and you lower your monthly payment. If you’re still unsure about this, let’s look at an example:
- Loan amount: $17,500
- Loan term: 36 months
- Down payment requirement: $1,000
- Interest rate approved at: 13%
| Down Payment | Monthly Payment | Total Interest Paid |
| $1,000 (minimum) | $556 | $3,514 |
| $1,750 (10%) | $531 | $3,354 |
| $2,625 (15%) | $501 | $3,168 |
| $3,500 (20%) | $472 | $2,982 |
Ready to Buy a Car?
Always remember: making a down payment helps you out in the long run. Yes, it does feel like you’re dropping a lot of money up front, and it may sting a little, but you save on total interest charges paid and lower your monthly payment.
When you have your down payment ready to go and are looking to take the next step in the car buying process, Drivers Lane is here to help. We can connect you to a dealership that's qualified to handle unique credit situations. Just fill out our fast and secure online auto loan request form to get started today.
