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Down payment is an essential element of your auto loan that determines the loan terms and interest rates. You might have come across dealership advertisements suggesting that you can avail auto loans with little or no down payment. However, is it possible to get an auto loan with a minimum down payment of $500? Understanding the importance of a few elements can help you answer whether or not that $500 can serve as a down payment.
$500 or More: How Much Down Payment Is Enough for Your New Car?
The following factors will give you a clear understanding on the down payment and whether $500 is enough money to put down or not.
1) Credit Score
The lender and dealership play an important role in determining the amount of the down payment. Many dealerships want to help you build a good credit score. Bad credit auto loans are a great way to build good credit, especially when your credit score isn’t perfect. Therefore, you will find dealerships that will offer you bad credit auto loans for a down payment of $500. However, if you want to avail auto loan from the dealership, you may have to opt for captive financing and you may be missing out on other lucrative deals in the market. Therefore, it is imperative that you examine the auto loan contract in detail to find out whether it suits your needs or not.
2) Bad credit car buyer
Low down payment amounts are risky for bad credit auto buyers. You should aim for a higher down payment if your FICO score is less than 670. Lenders view the down payment as a means of analyzing your creditworthiness. Additionally, the higher the down payment, the less negative equity you will be carrying. As the loan amount reduces with a higher down payment, your monthly payment will become affordable. This will ensure regular payments and thus improve your credit score.
3) right amount
Putting down $500 might get you approved, but it won’t get you very far. You will face a huge loan amount. The suitable amount of down payment will differ from lender to lender. However, you must put down at least $1000 or 20% of the car’s value. A $500 down payment may work for a good credit history. However, if you’re dealing with bad credit, it’s best to try for more. If you do not have the wherewithal to make a large down payment, then you can opt for a no money down auto loan. Auto financing program will enable you to get loan approval without down payment. Before submitting your loan application, make sure that your lender does not offer any down payment financing options.
Down Payment on Your Next Car: Do the Best You Can
A hefty down payment will reduce the total amount you can borrow from the lender. This will help you make lower monthly payments and enjoy a shorter loan tenure. Additionally, interest rates will be lower because of your creditworthiness. Save money for a few months so that you can easily accumulate money. There are many advantages of making a down payment, but if you are not able to manage it, don’t worry. There is no point in making a down payment risking your financial position. Ask no money for an auto loan and buy your new car.
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