The down payment is a key component of a car loan that determines the loan terms and interest rates. You may have come across dealership ads that say you can take advantage of a car loan with little or no down payment. However, is it possible to avail a car loan with a minimum down payment of $500? Understanding the importance of certain elements can help you answer whether or not $500 can work 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 of the down payment and whether or not $500 is enough to put the money in.
1) Credit score
Lenders and agents play an important role in determining the down payment amount. Many agents 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 provide you with bad credit car loans with a down payment of $500. However, if you want to get a car loan from an agency, you may have to opt for restricted financing and you can lose out on other attractive deals in the market. Therefore, it is imperative that you check the car loan contract in detail to see if it suits your needs or not.
2) Bad credit car buyers
A low down payment amount is risky for bad credit car buyers. You should aim for a high down payment if your FICO score is below 670. Lenders look at your down payment as a way to analyze your creditworthiness. Additionally, the higher your down payment, the less negative balance you carry. With a lower loan amount with a large down payment, your monthly installments will come in handy. This will ensure regular payments and thus improve your credit score.
3) The correct amount
Putting in $500 money may get you approved, but it won’t get you far. You will face a large loan amount. The right amount for your down payment will vary from lender to lender. However, you must put in at least $1,000 or 20% of the car’s value. A decent credit history can make a $500 down payment work. However, if you are dealing with bad credit, you better try more. If there is no way you can make a large down payment, you can choose to not make any car loan payments. Auto finance software will enable you to get loan approval without down payment. Before submitting your loan application, make sure that your lender does not offer down payment financing options.
Down payment on your next car: do your best
A large down payment will reduce the total amount you borrow from the lender. This will help you to pay lower monthly installments and you will be able to enjoy a reduced loan term. Additionally, interest rates will decrease due to your creditworthiness. Save money for 2 months so you can easily put your money to work. There are many benefits to making a down payment, but if you can’t manage it, don’t worry. It makes no sense to make a down payment by putting your financial condition at risk. Don’t ask for any money from the car loan and buy your new car.