Can You Use a Personal Loan as a Down Payment on a Bad Credit Auto Loan?

You can’t use a personal loan as a down payment on your next auto loan, but there are other options to consider if you’re not sure how to come up with a down payment. Personal loans are great for credit-building since they’re an installment loan, but most subprime lenders don’t allow you to use one for a down payment.

Down Payment Options for Bad Credit Car Buyers

Can You Use a Personal Loan as a Down Payment on a Bad Credit Auto Loan?While subprime lenders don’t allow you to use a personal loan as a down payment, you have three other options to choose from. They may need some planning and time, but you typically can’t avoid needing money to put down if you have bad credit. Most subprime lenders require a down payment of $1,000 or 10% of the car’s selling price, whichever is less.

Here are your options:

  1. Cash – You can use your own cash for the down payment.
  2. Trade-in equity – If you have a trade-in that has equity, you can apply the equity as money down.
  3. Combination of both – If you don’t have enough with just your trade-in, or you want to make a bigger down payment, you can add your own cash on top of the trade-in.

Does a Larger Down Payment Really Help?

Yes, a larger down payment does help you! It may seem like a big waste of money upfront, but the reality is that you end up saving more in interest charges while lowering your monthly payment. If you have bad credit, we suggest putting as much money down as you can comfortably afford because a larger down payment helps you in the long run.

When you have poor credit, you can expect an interest rate in the double digits, and that means higher interest charges. When you make a larger down payment, you lower the total interest charges over the loan term in addition to making your monthly payment more affordable.

For example, if you plan to buy a vehicle selling for $12,000 for 60 months and were approved at an interest rate of 18%, your monthly payment (without tax, title, and license fees) would be $305, and your total interest charges would be $6,283. If you include a down payment of 10% ($1,200), your monthly payment becomes $274 and your interest charges drop to $5,655, while putting 20% down ($2,400) leads to a monthly payment of $244 and interest charges of $5,026.

Ready to Find Financing?

When you have a down payment ready to go, your next step is to find a dealer that can work with bad credit. At The Car Connection, we can help with just that.

We connect credit-challenged car buyers to dealerships that have the lending resources available to get them financed. Getting started is easy, just fill out our free auto loan request form, and we’ll get right to work matching you to a dealer near you.


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