While $500 may seem like a chunk of change, it may not be enough of a down payment if you have bad credit.
When is $500 Enough?
Typically, a down payment of $1,000 or 10 percent of the vehicle’s selling price is required on every bad credit car loan. So, a $500 down payment could be enough if you’re only getting a small loan. However, $5,000 is the smallest loan most subprime lenders offer, and it’s rare to find a reliable used vehicle at this price point.
Down Payments Work in Your Favor
Even though you’ll probably end up needing a larger down payment, that’s not a bad thing. In fact, a larger down payment works in your favor in several ways. For instance:
- A larger down payment saves you money – Money down reduces the amount you’re borrowing, so the more money down, the less you have to borrow. Borrowing less money means you might also be able to shorten the loan term. This leads to less money being paid in interest charges over the length of your loan.
- A larger down payment helps with equity – If your car is worth more than you owe on your loan, you has equity. By having a large enough down payment, you can significantly reduce the amount of time that you’ll owe more than your car is worth. Owing more on the loan than the car is worth is known as being upside down, or having negative equity.
- A down payment shows you’re invested – Being prepared with a down payment shows the lender you’re invested in the loan. People who provide a significant down payment have shown a higher rate of successful loan completion than those who don’t.
As you can see, making more than a $500 down payment can help you out in many ways. Another thing to keep in mind is that down payments don’t have to be all cash. If you already have a car, but need something newer, a trade-in could provide you with all or part of your down payment, depending on how much equity is in the car and the vehicle’s actual cash value.
Get Started with Us!
If you’ve saved up a down payment and are ready to find your next car, let Drivers Lane point you in the right direction. We work with a coast-to-coast network of special finance car dealers that have lenders available to help people who are struggling with credit challenges. Get started today by filling out our simple online auto loan request form now.