When it’s time to finance a car, you may be wondering how big of a down payment you need. Just how much cash you can and should put down depends on your credit, income, and vehicle choice. But, the bigger the down payment, the better off you are over the course of the loan.
How Much Money Should I Put Down?
If you have good credit, you may not need to make a down payment, but you still have the option to do it. When you have bad credit, however, you can’t avoid needing a down payment, with the minimum amount required by most subprime lenders being $1,000 or 10 percent of the vehicle’s selling price, whichever is less. As long as you meet the minimum amount required, you should be fine. But if you can, you should really try to make a larger down payment – nearer the 20-percent mark.
You can make a down payment by paying cash, using trade-in equity, or a combination of both. Using our Monthly Payment Calculator, you can see just much of a difference larger down payment amounts make.
Advantages of a Down Payment
While you can make the minimum down payment, you should also understand the advantages that making a bigger down payment can have:
- Helps you get approved – A bigger down payment can help you get approved for a car loan if you have bad credit. It shows how committed you are to completing the loan.
- Can shorten the loan term – A bigger down payment can help you shorten your loan term while keeping the monthly payment reasonable.
- Lowers monthly payment – Keeping the same loan term, the bigger the down payment, the lower your monthly payment.
- Reduces interest charges – A down payment reduces the interest charges you pay over the term of the loan, which can really help if you have a high interest rate.
- Avoids or cuts down on negative equity – Cars depreciate, and most owners end up owing more on their loan than their vehicle is worth during the first few years. This is called having negative equity, or being upside down. Making a down payment can help decrease or eliminate the amount of time you spend with negative equity.
Although a bigger down payment definitely helps you save money, you typically can’t lower your interest rate by putting more money down. If you need to get a better interest rate, you can refinance your car loan once your credit improves.
Ready for a Car Loan?
If you saved up for a down payment and are ready for an auto loan, but worry your credit is holding you back, let The Car Connection help.
We're teamed up with dealerships nationwide that have lenders available that work with bad credit, no credit, and even bankruptcy borrowers. You can search for vehicles with our new and used car buying guides, and when you’re ready, you can simply fill out our easy online auto loan request form, and we'll get right to work matching you with a local dealer.