Your Guide to Down Payments on a Vehicle

When you’re looking to buy a vehicle, there are many aspects you need to consider. From fun choices, like what type of car you want and what features are your favorites, to more serious elements, like your credit score and calculating how much you can afford, the process isn’t something to be taken lightly. You may be struggling with your credit, and like many Americans, debt or an unfortunate financial situation could have caused your score to plummet.

This may have prompted you to search for “Bad credit car dealerships near me,” and when you want to be satisfied with the selection you’re able to shop from and the team you’re able to work with, you’ll want to trust Faith’s Automotive. One of the most important pieces of the car buying puzzle is the down payment, and we’re here to help with everything you need to know about down payments on a vehicle.

How Down Payments Work

A down payment is a sum of money put towards a vehicle to help lower the amount of money that’s being financed. This allows you to significantly reduce the amount you’re borrowing on your loan, thus driving down your monthly payments. This also helps you improve your chances of being approved for a vehicle loan, especially if your credit is less than stellar. When you have some money set aside that you can offer to put towards the loan, lenders are more comfortable loaning you that money, which is important if you’re challenged by your current credit situation.

You’re able to prove that you’re not a great risk to your lender as well, which can help you qualify for better loan terms and lower interest rates. This is another big perk of putting money down on a vehicle. Being able to qualify for a loan allows you to work toward improving your finances, helping you build back your credit so that the next time you need to buy a car, you can be approved for a much lower rate. A down payment kickstarts the process; from there, it’s a snowball effect. You save some money, lenders see that you’re a lower risk to them, you get approved for a loan you can pay back easily, and your credit score reaps the benefits.

How Much Should You Put Down on a Vehicle?

The industry generally recommends using at least 10% of the vehicle’s purchase price as a down payment on a used car and 20% if buying a new car. Now, this is just a rough figure. If you can put down more, it’s absolutely recommended that you do so to improve your chances of getting approved for a better loan, especially when you have poor credit. You see, the less you put down on your vehicle, the higher your monthly payments (and your interest rate) will be, causing you to pay more money in interest throughout the life of the loan.

We recommend getting a general idea of what type of vehicle you’re looking for and start there. See how much that particular vehicle is going for and adjust your down payment accordingly. As a dealership that works with all types of credit situations, we advise you to stick to vehicles that fall securely within your budget so that it’s easier for you to make regular on-time payments on your loan. The last thing you want is to get in over your head and not be able to pay back your vehicle loan. Taking some time to do some research, calculate your budget, and start saving will help immensely.

Down Payments and Bad Credit: How to Prepare for Success

In addition to doing your research and knowing your budget, you want to work toward improving your credit as well. This way, when you apply for a vehicle loan, your credit score shows improvement, which can lead you to better loan terms. Run a free credit report and see where you stand; these reports are easy to procure and feature important tidbits about your score and how to improve it. Experts recommend getting a handle on your revolving utilization, which is how much credit you use compared to your credit limit. Try and get this down to 30% or below to help improve your score.

Another aspect that you need to take seriously is paying your bills on time. Late or no payments can ruin your credit score, and it can take a long time to shed the stigma of being someone with bad credit. Get your bills and debt together and make a plan for how you’re going to manage it all. After all, you don’t want to add another debt to your portfolio if you can’t afford it.

Down Payment FAQs

There are many questions surrounding down payments, as they’re a staple in the car buying process. When you suffer from bad credit, however, you may be concerned about the overall process and how down payments truly affect the end result. That’s why we’re here to assist by answering some of the most commonly asked questions about down payments.

Is a Down Payment Necessary/Required?

It’s not a law that a down payment must be presented to buy a car, but in most instances, it can benefit you greatly. As we mentioned above, down payments help make your monthly loan installments more manageable, helping you pay off your loan quicker. It’s important to note that for those with poor credit, a down payment may be required for a lender to feel comfortable working with you. This is why you’ll want to start saving so that you pose less risk to potential lenders.

How Much Should a Down Payment Be if You Have Bad Credit?

Many bad credit car dealerships will work with you if you’re concerned about your credit. After all, they want to see you succeed just as much as you do. As a rule of thumb, putting down at least 10% of the vehicle purchase price will help you get offered better loan terms; however, if you can do more, do so. Remember, this will benefit you in the long run, which makes down payments an integral part of success for bad credit car buyers.

What Matters More: Down Payment or Credit Score?

Although your credit score plays the key role in whether or not you’ll get approved for financing and, if so, how much you’re approved for, down payments can come to the rescue to help improve your odds. If you’re on the verge of not being approved, having a down payment to offer can potentially help you get approved and with a more manageable monthly payment. Think of these two elements working hand-in-hand throughout the process.

Down Payments 101

As you can see, down payments are extremely important when you’re looking to buy a vehicle. This is especially true when you’re actively working on improving your credit score. Taking the time to save money and get a handle on your finances won’t just help you when it’s time to buy a car; it’ll help with a variety of major purchases. Plus, in being able to get a loan for a vehicle, you’ll be able to drive a safer, more reliable car, putting more confidence into your daily journey. So, if you’re worried about your credit when buying a car, turn to a down payment to help you maximize your experience and lead you to a better credit score and a better vehicle.