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The Ugly Side to No Down Payments

Milad Hassibi April 11, 2018

When buying a new car with a low credit score and poor credit history, a down payment can significantly increase your chances of approval while also providing you with any benefits. Although a down payment can mean less cash in your pocket today, in the long run, it can save you thousands in payments and interest.

These days, most lenders do require some form of a down payment made in cash when financing a new vehicle. Depending on your situation and location, an auto lender will typically require a down payment of 10% of MSRP or $1,000 in cash, whichever amount is lower.

Most lenders require a down payment to reduce the “risk” associated with lending you the money. If you are having a hard time coming up with the needed amount for a down payment, you will have a hard time finding a lender that can get you approved.

Here are some of the downfalls of not providing a down payment.


Interest is included in each and every payment you make when you are financing a vehicle. If you are able to provide a down payment, it will reduce the principal loan amount which in turn, reduces the overall interest amount you are obligated to pay.

This can amount to thousands of dollars in the long run of just interest payments alone. A down payment can reduce long-term interest and can possibly lower your overall interest rates as well.

Longer Terms

If you do not plan on providing a down payment, you may be forced with an extended loan term to A down payment being tied to a ball and chainmake those monthly payments more affordable. Although most car loans are paid off over the course of 6 years, you may find yourself making payments for up to 7 years with a smaller down payment.

It is important to also remember that interest will be tacked onto each payment as well.

Equity Claims

The goal of financing is to one day own the car. The ownership claim of the car is often referred to as “equity”. In definition, equity is the difference in the value of the car and the unpaid amount on the loan. If a loan balance is more than the current fair market value of your vehicle, you are considered to be “underwater”, a common way of phrasing “negative equity”.

This makes it hard when it comes time to trade in your car or if it becomes totaled.

With a down payment, these drawbacks can be reduced or removed completely. Being an informed and prepared consumer can help massively, especially if you are in a low cash and low credit situation.

 If you do not have the means of providing a down payment, you may want to explore the possibility of postponing your new car purchase if your current car can get you from point A to point B.

Final Note

In the end, you can save thousands of dollars on high-interest rates if you provide an upfront down payment. Not every lender will approve you with no down payment but be sure to be wary of any lenders that make it “too easy”.

As always be careful and be sure to read the entire lending contract prior to signing. You can never ask your loan officer too many questions either.

If you are struggling to find an affordable auto loan with a low credit score, CrediReady can help you. We have a large database of trusted dealers and lenders that work with good people in bad credit situations. Take a moment to fill out our free no-obligation form and get approved for the car you need today.

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