Whether or not you need to pay a down payment for a car loan often depends on your creditworthiness. If you have a bad credit rating, you can usually expect a minimum down payment for the car financing to be taken into account – then it depends on the amount!
Down payments and car loans
When applying for a car loan, your lender may require a down payment so that you can be considered for financing. If you have poor credit, you can expect to need at least $ 1,000, or 10% of the vehicle’s retail price.
Down payments are often required for bad credit borrowers as lenders need to make sure they are invested in the car loan – borrowers who are invested are less likely to default. This means that a down payment will lower your risk as a borrower, which can help you get approved by a car lender if your credit score is not perfect.
As a bonus, parking money can also help you get into a more expensive vehicle! If you’re only eligible for $ 5,000 financing but want a $ 7,000 car, $ 2,000 can be used to buy the vehicle you want. Down payments can bridge the gap between what you qualify and something more expensive.
However, a simple down payment does not automatically mean you are eligible for funding as you still need to prove that you can afford the car loan payments. There’s also nothing stopping you from putting in more than the minimum amount required now to save money in the future!
Down payments save money
While it may seem like more of a hassle to put a lot of money into a loan, it can actually be worth it much. That’s because borrowing money from a car lender means funding, which means interest fees.
Interest is the cost of borrowing, and the bigger and longer your loan, the more interest you pay. By investing in a vehicle, you finance less. That means your down payment matters when it comes to how much interest you charge over the course of the loan.
To buy a $ 12,000 car at 12% interest on a 60 month loan, you pay $ 16,016 until the end of the loan. Even though the vehicle was only $ 12,000, the interest costs really pile up.
But if you put $ 2,000 on the car, you only pay $ 13,346 on the vehicle, saving $ 670 after the deposit is deducted. That might not seem like much at first, but that’s roughly three car payments or three additional months for this car.
It is for this reason that every borrower is recommended to deposit funds for a car loan. It will save you money in the long run and it can lower your monthly payments. In the example above, the loan with no cash amount had a payment of $ 267while the loan with the down payment of USD 2,000 is a payment of. would have $ 222. Not only do down payments lower your interest costs, but they can also help free up your monthly disposable income by lowering your monthly car payment.
Are you saving for your next car loan?
Whether or not you have to make a down payment depends largely on your creditworthiness, and how important that amount is to you depends on how much interest you are willing to pay. The minimum amount you need to put aside may also depend on your lender and the price of the vehicle you are trying to finance.
And if you are a bad borrower, a down payment matters a lot – in fact, you will likely need one to take out your next car loan. However, just having a down payment does not mean that you are guaranteed to be able to get a loan.
Traditional car lenders may not even approve you if your score is too low, no matter what the down payment you make. If you have encountered the problem of getting declined based on your credit score, it may be time to look for specialized funding.
Specialized financing is for borrowers with less than perfect credit, and that means you are working with a sub-prime lender and we will know where they are! Here, at Car loan express, we have a nationwide dealer network and after completing our free car loan request form, we are looking for a dealer near you with special financing. It’s fast, secure, and you never have to buy. Get back on the streets with the help of the right lender for the job!