When you need to finance a car with bad credit, you'll need a lender who can work with your situation. Those lenders who are willing to approve people with damaged credit have minimum requirements you must meet. And, in most cases, one of them will be a down payment. However, a down payment on a bad credit car loan works in your favor in several different ways.

Why Lenders Typically Require a Down Payment on a Bad Credit Car Loan

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Subprime lenders are willing to work with applicants with bad credit. They work through their car dealer agents and can help you reestablish your credit. However, they will always have minimum requirements that applicants must meet.

Most bad credit lenders require a down payment. The standard down payment on a bad credit car loan is 10 percent of the car's selling price or $1,000, whichever is less. Remember that this is only the typical standard requirement, and different lenders can have different conditions. Also, down payments can be in the form of cash, trade-in equity, or a combination of both.

Subprime lenders typically make a down payment a requirement for a few reasons. Statistics show that loans to borrowers who have made a down payment perform better than loans where no down payment was made. In other words, buyers who contribute their own money to a car loan tend to pay it back more regularly than buyers who don't.

It also puts you in a more favorable light. A down payment shows the lender you are willing to put your own money on the line. This is seen as a commitment to paying back the loan. In their view, you are more likely to make regular and timely loan payments.

In addition to satisfying the lender's requirement, a down payment on a bad credit car loan also works to your advantage.

How a Down Payment Works to Your Advantage

If you need to finance a car with imperfect credit, a down payment can provide some serious benefits. A down payment can not only make or break your chances of getting approved, it can also save you money down the road.

Here are some of the ways that a down payment can help you.

  • It can improve your chances of getting approved. Providing a down payment means you are asking to borrow less. Since it reduces risk for the lender, a down payment can help you get approved.
  • A down payment can save you money. By reducing the total loan amount, a down payment can help you save money. A lower loan balance means lower monthly payments. Also, it will reduce the total amount of interest you'll end up paying. So, it helps you save money month-to-month and in the long run.
  • It can be used to shorten the loan term. Instead of getting a lower monthly payment, you can use the down payment as a way to shorten your loan term. By reducing the amount of time the vehicle is financed, you can save big on interest charges over the life of the loan.

Borrowers should note that poor credit loans come with higher than average interest rates. Therefore, reducing the total amount of interest you'll pay can make a big difference with these car loans.

The Bottom Line

Bad credit borrowers should consider the fact that while a down payment is typically a lender requirement, it can also provide you with many benefits.

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

Our fast and free service allows us to find a dealership in your local area that is able to handle unique credit situations. In some cases, you may even be able to purchase your car with little or no money down. However, as we just discussed, it may still be in your best interest to make one, if you've got it.

You can get the process started right now by filling out our free and secure online auto loan request.