If you have strong credit and earn qualifying income, you may not be required to make a down payment when buying a car. With bad credit, however, you can expect the lender to ask for a down payment. But how much money do you need for deposit on a vehicle when you have bad credit?
How much money to put on a car with bad credit
Having a down payment can increase your chances of being approved for a car loan. Lenders with bad credit are sometimes hesitant to work with some borrowers with credit problems, but the money down often helps build demand. This is because your down payment shows the lender that you are committed to paying it back.
These lenders generally require car buyers with poor credit to deposit a minimum of $1,000 or 10% of the purchase price, whichever is less. If you have a vehicle to be exchangedyou can apply its value or any equity to your down payment.
Of course, $1,000 or 10% is the minimum amount these lenders are looking for. You can help yourself and save money if you are able to provide a larger down payment. Here are a few other things to keep in mind when deciding how much money you want to put on a car if you have bad credit:
- What kind of car you buy – In addition to the influence of price, whether you’re buying new or used can affect your ideal down payment. New vehicles depreciate by about 20% on average in the first year of ownership. This gives you an added incentive to put more money down to avoid being upside down on your loan too long. You may need to do some extra research when targeting used cars to buy. Looking at the prices of some options will help you get an idea of how much you’ll need to save for a down payment.
- Your budget – The ideal down payment for you also depends on your financial situation. The amount you earn, spend on monthly bills, and have saved should also play a role in your down payment plans. In a perfect world, you should plan ahead to get an idea of the right down payment amount and strive to gradually save that amount before you begin the car buying process.
Money savings at stake
If your credit has seen better days, saving for a larger down payment can help offset the effects of higher interest rates on bad credit car loans. A larger down payment means borrowing less, resulting in a lower monthly payment. More importantly, a lower loan amount allows you to pay less interest in the long run, which can make a big difference.
For example, if you financed a $17,000 car loan for 60 months with an interest rate of 12% with no down payment, you would end up paying $5,689.23 in interest charges. In the same scenario, if you were to make a 10% down payment ($1,700), you would save $568.86 in total interest charges. Increase your down payment to 20% ($3,400) and you reduce the interest charges you pay by $1,137.64.
As you can see, your finances will thank you for putting down a deposit.
When you’re dealing with less than perfect credit, you should have a down payment to help you through the car buying process. Having money to put on a car with bad credit can help you get approved and even save you money.
If less than perfect credit complicates the search for financing, Auto Express Credit offers a solution. We match car buyers with local dealerships who know how to fix credit issues. Our service is free and does not commit you to anything, so you can start with confidence by completing our car loan application form at present.