How Down Payments Affect Auto Financing

In many cases people look to avoid down payments when applying for auto financing, which could actually have a negative affect on your loan process. Of course, this usually depends on your credit status as sub-prime car loans with zero money down for people with good credit are not as difficult to receive. However, those seeking bad credit loans or having other credit problems can face a number of issues with this decision.

Importance of Down Payments on Car Loans

A down payment is large part of purchasing a vehicle with a loan, and can be the difference between financing approval or denial. Lenders usually ask that their customers be prepared to place money down on a car, as it makes the entire lending process progress smoother.

By making a down payment it allows for auto finance companies that you're working with to build a level of trust, which is very important in financing. A dealer wants to know that you're just as invested into the vehicle you're purchasing as they are with offering you a substantial loan. In fact, multiple sources claim that people who offer a money down are more likely to take better care of their automobile, and be approved for a loan.

The lender is not the only winner in this situation either. You as a consumer also benefit greatly from providing some money upfront, as your interest rates and monthly payments on bad credit car financing can be lowered. The extent of the reduction is largely based on how much your down payment is and how high or low your credit is at the time. 

Can you opt to apply for financing without making a down payment? Yes, but there will be greater pressure placed on various aspects of your loan application. The importance of things such as employment status, monthly income, and credit score with be magnified, which can complicate the loan process.

So if you can financially afford to make a down payment I suggest that you go forward with offering one. Otherwise, be sure that the rest of your credentials are good enough to satisfy the stipulations that your lender may have in place.