Just how large or small of a down payment you should make depends on the type of car loan you’re taking out. Traditional auto loans don’t always require a down payment, whereas special finance car loans generally do. Plus, what a subprime lender requires for a down payment can differ from a buy here pay here dealership.
Down Payment Requirements for Bad Credit Car Buyers
If you have bad credit, you most likely aren’t going to be able to finance through a traditional lender. Your next option is to look for a special finance dealer that has subprime lenders that can work with you. Subprime lenders usually require a down payment, but they typically don’t ask for a large one. Although this varies, most subprime lenders ask for a minimum down payment of $1,000 or 10 percent of the vehicle’s selling price, whichever is less.
Buy here pay here (BHPH) dealerships, on the other hand, may ask for an even larger down payment. These dealers offer in-house financing, so they don't use outside lenders. In order to help cover the cost of the car, these dealerships may ask buyers to make a larger down payment, which could be over 20 percent of the selling price. Again, this varies by dealer and the type of vehicle you plan to finance.
How a Larger Down Payment Can Help
While you can get by with the minimum amount, coming up with a larger down payment can help make the auto loan more affordable. It’s true your monthly payment drops with a bigger down payment, but your overall interest charges decrease as well. Let’s take a look at an example of how a larger down payment can make your car loan more affordable:
Joey doesn’t have the best credit, and is choosing to finance his used vehicle through a subprime lender. He decides to finance a 2014 Honda Accord LX sedan for 60 months. The sedan is priced at $12,300, and his approved interest rate is 15 percent. Here’s how different down payment amounts affect the cost of Joey’s auto loan:
| Down Payment Amount | Monthly Payment | Total Interest Paid |
| $1,000 (minimum) | $269 | $4,830 |
| $1,230 (10%) | $263 | $4,731 |
| $1,845 (15%) | $249 | $4,468 |
| $2,460 (20%) | $234 | $4,206 |
As you can see, the more money you put down, the cheaper your car loan is going to be. To come up with the down payment you can either pay cash, use trade-in equity, or a combination of both.
Ready to Get a Car?
If you’ve saved up a down payment, and are ready to buy the vehicle you need, but worry your credit is holding you back, we want to help.
At Drivers Lane, we work with special finance dealerships all across the country that are experts at helping people dealing with bankruptcy and less than perfect credit . We'll work to match you with a dealer near you if you start the process by submitting our free and secure auto loan request form.
