Down Payment is an essential element of your auto loan that determines loan terms and interest rates. You may have come across dealership advertisements that suggest that you can avail of an auto loan with little or no down payment.
However, is it possible to avail of an auto loan with a minimal down payment of $500? Understanding the importance of certain elements can help you answer if $500 can work as a down payment or not.
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$500 or More: How much Down Payment is good enough for your New Car?
The following factors will give you a clear understanding of the down payment and if $500 is enough for putting money down or not.
1) Credit Score
Lenders and dealerships play an important role in determining the amount of down payment. Many dealerships want to help you to build a good credit score.
Bad credit auto loans are a great way to build good credit, especially when your credit score is not perfect. Therefore, you will find dealerships that will provide you with bad credit auto loans on a down payment of $500.
However, if you wish to obtain an auto loan from a dealership, you may have to opt for captive financing and you can lose out on other attractive deals in the market. So, it is essential that you check the auto loan contract in detail to find out whether it suits your needs or not.
2) Bad Credit Car Buyers
A low down payment amount is risky for bad credit auto buyers. You should aim for a high down payment if the FICO score is less than 670. Lenders view a down payment as a means to analyze your creditworthiness.
Additionally, the more the down payment, the less the negative equity you carry. As the loan amount reduces with a big down payment, your monthly payments will become affordable. This will ensure regular payments and thus improve your credit score.
3) The Right Amount
Putting $500 of money down may get you approved, but it will not take you far. You will be faced with a big loan amount. The appropriate amount of down payment will differ from lender to lender.
However, you should at least put down $1000 or 20% of the car's value. Decent credit history can make $500 off down payment work. However, if you are dealing with bad credit, it is best to try for more.
If there is no way in which you can make a big down payment, you can opt for no money down auto loans. The auto financing program will enable you to seek loan approval without a down payment. Before submitting your loan application, make sure your lender offers no down payment financing options.
Down Payment on Your Next Car: Do the Best you can
A hefty down payment will reduce the overall amount that you borrow from the lender. This will help you to make lower monthly payments and you will be able to enjoy a reduced loan term.
Additionally, the interest rates will go down because of your creditworthiness. Save money for a couple of months so that you can put money down easily.
There are many benefits to making a down payment, but if you cannot manage it, do not worry.
It doesn't make sense to make a down payment by putting your financial condition at risk. Seek no money down auto loan and buy your new car.