It’s certainly possible to get into an auto loan without a down payment, but typically only if you have a good credit score. With a poor credit score, there's a down payment requirement. Even though a down payment is required, there are also many benefits to putting some cash down on a vehicle.
No Down Payment Car Loans
To qualify for a no down payment car loan, you usually need a good credit score. For the most part, everyone else is likely to be required to have some cash down. With a credit score below 660 – the general cutoff line between good and bad credit – it can be difficult to qualify for an auto loan, let alone zero-down financing.
Subprime lenders (or bad credit lenders) generally require at least $1,000 or 10% of the vehicle’s selling price from their borrowers. According to data provided by our network of dealers here at The Car Connection, bad credit borrowers put around $2,000 down on average.
If the minimum down payment amount is typically around $1,000, why are borrowers putting more down? Because putting money down is a great idea regardless of your credit situation or the price of the car!
Benefits of Down Payments
First off, down payments increase your odds of getting approved for an auto loan. Also called having “skin in the game,” it shows the lender that you’re invested in the loan process. Borrowers who put cash down are more likely to successfully complete their car loans.
Approval odds aren't the only thing that benefits from a down payment. They save you cash in the long run, and lower your monthly vehicle payment. Most borrowers are concerned with the size of their monthly payments, so if you want a lower, more manageable car payment, put cash down.
Down payments save you money during your loan term, too, because most auto loans use a simple interest formula. Put simply, your interest charges accrue daily. With each passing day, you’re adding more interest charges on top of the total financed amount. The more you owe for longer, the more you’re going to pay.
Many bad credit borrowers are also concerned with their interest rate. However, down payments lower how much you need to finance, and, therefore, lower the amount of interest you accrue during your loan term. Since many car deals with the lowest interest rates are reserved for those with good credit, you may have to anticipate a higher interest rate than you want.
There’s a way to lower your interest rate in the middle of your auto loan, though, so don’t stress too much about high interest rates if you’re struggling with a car loan approval to begin with. One step at a time!
But I Don’t Have a Down Payment …
We get messages every day from users saying they don’t have a down payment, and if it’s possible to get into an auto loan without one. The bad news is that it isn’t very likely. For borrowers that are struggling to come up with the down payment requirement, there are some tactics that can help you save up. Additionally, you don’t have to just have cold, hard cash to meet the down payment requirement.
- Put savings away right away! – It can be hard to save when your income is being eaten up by other expenses, so it’s easier to save when you save your money right when you get paid. Set a budget, put the savings in an account immediately, and then the temptation to use that extra cash is lessened.
- What can you cut out? – It’s difficult to cut out expenses, however, do you have anything that you can live without for a little while as you save? For example, do you have multiple subscriptions for streaming services? Consider cutting one or more out until you can save the amount you need for your next vehicle.
- Use a trade-in – The good news is that you don’t have to use just cash to meet a down payment requirement, as a trade-in with equity can help. If you have a car right now, and it has equity, its trade-in value can be used to lower your down payment requirement. You can look up your current vehicle’s value online using Kelley Blue Book, Blackbook, or NADAguides. These sites can give you an estimate of what your car is worth so you can see how much your old vehicle can help.
Saving for a down payment can be hard work, but it’s worth it. Remember that down payments are almost always a requirement if your credit score is less than perfect, but they also lower your car payment and save you money long term – so try to save as much as you can reasonably afford!
Finding a Bad Credit Dealership
Want a lower monthly vehicle payment? Put cash down. Worried about interest charges? Put cash down. Down payments can be hard to save up for, but they’re a great way to jump-start an auto loan.
Getting into a subprime car loan means locating a special finance dealership that’s teamed up with these lenders. Luckily, here at The Car Connection, we’ve got the connections you need for your auto financing needs.
Get connected to a dealer in your local area by filling out our free car loan request form, and we’ll do the looking for you.