The truth is, if you have bad credit, you probably won’t qualify for a zero down car loan. This type of loan is meant for buyers with excellent credit and is only offered at certain dealerships. So, if you’re in the subprime credit category, you’ll need to have a down payment ready when buying a car.

The Down Payment Requirement

The Truth about Zero Down Car Loans with Bad CreditWhen you finance a new or used car with bad credit, the down payment requirement varies by lender. While there’s no exact amount lenders follow, they typically ask for a minimum down payment of $1,000 or 10 percent of the car's selling price, whichever is less. If you’re able to make a bigger down payment, it’s highly recommended that you do.

So, why do you have to have a down payment for a bad credit car loan? This is because lenders see you as a riskier borrower, and putting your own money down shows the lender you’re serious about successfully completing the loan.

A higher down payment can help you save money in the long run by reducing the amount of interest charges you end up paying. Something around 15 to 20 percent can also make it easier for you to maintain equity, especially if you’re financing a newer vehicle. New vehicles take the biggest drop in value after the first year of ownership – around 20 percent. The more money you put down, the less time your vehicle will spend in negative equity territory.

To meet the lender’s down payment requirement, you have a couple of options. You can use cash, your tax refund, or any equity you have in a vehicle you want to trade in. Make sure you don’t have negative equity, because rolling it over into a new loan could cause more financial damage in the long run.

Down Payment Benefits

While it may seem like you’re throwing money away, the down payment requirement is there to help you and comes with benefits in the long run. This is because a down payment lowers the amount you borrow (and the loan-to-value ratio), reduces your monthly payment, and cuts the overall cost of the car loan by reducing interest charges.

Making a down payment can also allow you to shorten the loan term. While longer loan terms come with lower monthly payments, the overall interest charges you’ll pay will be much higher compared to a shorter term.

Get the Financing You Need

If you’re looking to finance a car, but you’re worried that finding a dealer that can help will be a challenge, let Drivers Lane help. We want to connect you with a qualified dealer in your area that specializes in working with buyers with poor credit situations, saving you both time and frustration.

Our service is free and there’s no obligation to buy. Get started by filling out our quick and secure auto loan request form today.