When you apply for a bad credit car loan, you’re typically going to be required to make a down payment. The down payment requirement varies based on your situation and the lender you're applying with. The good news is that you don’t need to make a large down payment, and you have a couple of options for how you can make it.

Bad Credit Car Loan Down Payment Requirements

Do You Need a Down Payment on a Bad Credit Car Loan?The lenders who work with bad credit want to see you invest your own money in a loan, which is why they usually ask for a down payment. The two most common lenders to get a bad credit auto loan through are subprime lenders and buy here pay here dealerships.

Subprime lenders, who work exclusively through special finance dealers, generally require a minimum down payment of $1,000 or 10% of a vehicle’s selling price, whichever is less.

Buy here pay here dealerships, who act as both dealers and lenders, usually base their money down requirement on the car you choose. This makes their down payment requirement more variable than subprime lenders.

As for how to come up with the down payment, you can use cash, trade-in equity, or a combination of both. Any of these three options work, but if you have a trade-in, make sure that it's worth more than what you owe if it’s not paid off.

When you owe more on the loan than a trade-in is worth, it's known as having negative equity. Most lenders aren’t willing to let you trade in a vehicle if you’re upside down in a loan.

How Do Down Payments Help You?

While it can be a hassle to come up with, a down payment helps you in many different ways. Here are three ways a down payment works to your advantage:

  1. Improves your approval odds – Making a down payment gives you a better chance of getting approved. If you have bad credit, it can literally be the difference between being approved and being denied.
  2. Lowers your monthly payment – Making a down payment also lowers your monthly loan payment. There's nothing wrong with having more cash flow each month.
  3. Lowers the overall cost of the loan – On top of reducing your monthly payment, putting money down can save yourself a worthwhile amount overall. This is because a down payment lowers the amount of interest charges you pay, which lowers the total cost of the loan. This is even more true if you have bad credit and can only qualify for a higher than average interest rate.

The Bottom Line

You usually need to make a down payment on a bad credit auto loan, but it's there to help you. Not only do you have a better shot at getting approved, you save on the overall cost of the loan.

If you have bad credit and need to finance a car, the hardest part of getting approved is often finding a dealership that can help. But Drivers Lane has made this faster and easier with our nationwide network of special finance dealers.

Our fast and free service will work to match you to a dealership in your local area that can handle unique credit situations. You can get the process started right now by filling out our secure auto loan request form online.