Borrowers with good credit may not need to make a down payment on their auto loan, but people with bad credit are often required to put money down. Just how much you need to put down depends on your lender, your credit situation, and the cost of the vehicle you're financing.

Why Make a Down Payment on a Car Loan?

Down payments serve a few different purposes with car loans. Lenders look at them as a kind of good faith gesture, which shows them you're willing to invest in your vehicle.

For the borrower, a down payment saves money because the more money you put down, the less you have to borrow. A smaller loan amount means lower interest charges, which is where the savings come from.

Minimum Down Payment Requirements

Even though you usually have to make a down payment, you may not have to pay as much as you think. Typically, the money down requirement depends on the type of lender you're working with and the car you choose to finance.

As a bad credit borrower, you typically have to work with either a subprime lender or a buy here pay here (BHPH) dealership. Generally, subprime lenders require at least $1,000 or 10% of the vehicle's selling price, whichever is less. If you get a car from a BHPH dealer, the down payment requirement is much more varied. It usually depends on the price of the vehicle you finance, but it's not uncommon for their requirement to be larger than that of a subprime lender.

Coming Up with Your Down Payment

Do I Have to Make a Down Payment on My Auto Loan?Having to come up with a $1,000 or more might sound like a lot of money, but you don't typically have to pay only in cash. There are generally three ways you can come up with a down payment:

  1. Cash – If you have the money, a down payment can certainly be all cash.
  2. Trade-in equity – If there's enough equity, you can trade in your current car and use the equity as money down.
  3. Combine methods – If your equity only covers part of the down payment requirement, you can combine it with cash to cover the total amount.

In rare cases, you may be able to put a portion of the down payment on a credit card, but this isn't common, nor is it the best idea if you have bad credit. Ultimately, it usually ends up costing you more because you have to pay interest on the credit card amount.

Ready to Find Your Next Auto Loan?

Now that you know you usually have to make a down payment on an auto loan if you have bad credit, it's time to find the right lender to work with. Drivers Lane wants to help!

We've been connecting bad credit borrowers with dealerships in their local areas that have the lending resources to work with poor credit for over 20 years. You can get the process going by filling out our free and quick car loan request form. Get started right now!