Getting financially ready for a new auto loan can be stressful. When you’re calculating all of the costs, make sure you set aside enough for a down payment – because there’s typically no way around the down payment requirement if you need a bad credit car loan.
How Much Should I Put Down with Bad Credit?
When you have bad credit, a down payment is usually unavoidable. Requirements vary by lender, but most ask for $1,000 or 10 percent of the vehicle’s selling price, whichever is less. While the minimum may be enough to get by, it’s important you understand why the bigger the down payment, the better off you’ll be during the course of your auto loan.
Bigger Car Down Payments are Better
There’s no denying that depreciation takes a toll on a car’s value. If the vehicle is new, you can expect it to drop in value after the first year by about 20 percent. The first year of ownership is when the biggest drop in depreciation occurs, though it starts to slow down after that.
Your bigger down payment helps with that first depreciation drop. The last thing you want is to be upside down on your new loan, and one of the most common ways this happens is by not putting enough money down. This is why we recommend that you try to make a larger down payment. Currently, the average down payment made on a car is around 12 percent, but putting 20 percent down can help you offset depreciation and build equity in your vehicle.
However, don’t stretch your finances and put down more money than you can afford. Subprime lenders will take the minimum amount if that’s what’s affordable for you. Be methodical about the auto loan process and come to the lender prepared. The more prepared you are, the smoother the process will be.
The Bottom Line
The more money you put down, the more equity you can have in a vehicle. Depreciation is just as unavoidable as the down payment requirement, and if you’re able to put down close to 20 percent, you’ll be better off financially when it’s time to sell or trade it in down the road.
One of the best ways to build your credit is by taking out an auto loan. If you’re in need of a car and a boost to your credit, Drivers Lane wants to help. We can guide you toward a local special finance dealer who has the lending resources available for credit-challenged buyers who have bad credit or even no credit. Get started today by filling out our quick and easy auto loan request form.
