If you’re struggling with credit and on a tight budget, you may be wondering if it’s possible to get a car loan with bad credit and no money down. Unfortunately, when dealing with bad credit auto financing, you usually have to make a down payment. Usually, the only way you can get a car loan without a down payment is if you have good credit.
Down Payment Requirements for Bad Credit Auto Loans
We know that zero down auto loans are usually out of reach, so what do lenders ask for when it comes to the down payment? Subprime lenders that work with bad credit car buyers generally ask for a minimum down payment of $1,000 or 10% of the vehicle’s selling price, with the lower of the two accepted. Of course, this can vary from lender to lender.
You can come up with the down payment in three different ways:
- Cash – You can use your own money to make the down payment.
- Trade-in equity – If you have a car with equity, meaning that it's worth more than what you owe on its loan, you can trade it in and apply the equity as money down.
- Combination of both – If your trade-in doesn’t meet the minimum requirement, or you want to make a larger down payment, you can use a combination of both cash and trade-in equity.
Why You Should Consider Making a Larger Down Payment
Seems pretty straightforward, right? It is, and while you’d be OK with just making the minimum down payment, we recommend that you make the largest down payment you can afford if you have bad credit. This is because it allows you to save on the overall cost of the loan. Here's an example to show how it works:
Let’s say you’re financing a vehicle with a selling price of $18,000 for 60 months (five years). You’ve been approved at an interest rate of 13% and have a trade-in that’s worth $2,000. Without a down payment, your monthly payment would be $410 and your total interest paid would be $6,573. But here's what your loan would look like with different down payment amounts:
|Down Payment||---||Monthly Payment||---||Total Interest Paid|
|$1,000 (typical minimum)||---||$387 ($23 difference)||---||$6,208 ($365 difference)|
|$2,000 (trade-in)||---||$364 ($46 difference)||---||$5,843 ($730 difference)|
|$3,000 (trade-in plus $1,000)||---||$341 ($69 difference)||---||$5,478 ($1,095 difference)|
|$3,600 (20%)||---||$328 ($82 difference)||---||$5,259 ($1,314 difference)|
Of course, what makes the overall cost of the loan greater is the interest rate. Most bad credit car buyers can only qualify for higher than average interest rates. However, making a down payment works to counteract this, so making one is a good idea if you have poor credit.
The Bottom Line
You usually can't get a car loan with bad credit and no money down. Make sure to ask about a lender's down payment requirements, and prepare by saving one up ahead of time.
When you're ready to find a dealership to work with, The Car Connection has got you covered. We help consumers get the financing they need by connecting them to local dealers that have the proper lending resources. To get started, all you have to do is fill out our no-obligation auto loan request form today.