Leveraging Your Savings to Get Approved for a Bad Credit Car Loan
If you’ve approached a car dealer or loan provider to buy a car, they may have spoken to you about down payments. Some banks do not request down payments for car loans. Some dealerships also don’t expect a down payment. However, many providers of dealership loans for cars do. This payment goes hand in hand with loans, including bad credit car loans.
Whether you’re new to the world of car purchasing or have financed a car with a loan before, it’s ideal to understand and refresh your knowledge of the role of down payments with a bad credit car loan. Check this article to learn all about down payments and their importance.
What is a Down Payment for Cars?
As someone about to purchase a vehicle or apply for a bad credit car loan, you may have a key question: “What is a down payment for cars?” Simply put, the initial sum you contribute towards a new or used car is the down payment. This payment serves as protection. It protects the dealer and lender, securing the loan. It also benefits you for multiple reasons, which we will explore.
Down payments are a percentage of the car purchase price. There are no set down payment expectations in Canada. Some car loan services and dealers expect 10%. Others expect 20% of the car’s value, so it varies depending on the dealer. Let’s look at an example of this.
You may aim to purchase a used car that costs $25,000. You may agree to pay 20% of this value as the down payment. This means you’ll pay the dealer $5,000 upfront.
How Do Down Payments Impact Bad Credit Car Loan Applications?
Down payments impact bad credit car loan applications in a few ways. Here are three ways a down payment can positively impact your application for a bad credit car loan.
Increase Your Chances of Approval
Just by making a down payment of 20%, you ensure your dealer views your application favourably. Since the lender considers you a less risky borrower who can afford the down payment, you’ll increase your chances of approval for the loan. Most car loan services offer payment calculators that help you check costs and down payment values.
It’s an important factor for one reason. You typically have poor credit if you apply for a bad credit car loan. Lenders view your application as risky. They may think the chances of you defaulting on the loan are high. With down payments, you give yourself the perfect chance to receive a bad credit car loan.
Lower Interest Rates and Better Loan Terms
You’ll potentially have lower interest rates and better loan terms by making a down payment. You will pay less in terms of interest over the loan term because the lender may potentially agree to lower rates.
In terms of better loan terms, the duration of your loan can be shorter. They are less lengthy because you will have already covered a portion of the costs with the down payment. Your loan amount will be lower, as is your loan term. This benefits you because you’ll accrue less interest over time and save on interest costs.
Loan terms also depend on your credit history and credit report. With a poor credit score, this might lead to higher interest rates. However, your credit situation matters less with bad credit loans for cars.
Reduced Loan Amount
A down payment reduces the principal of your loan and helps you pay a lower loan amount. A sizeable down payment can result in lower monthly payments and easier budgeting. Here’s an example.
The cost of the vehicle you want to buy might be $10,000. If you make a down payment of 10%, this reduces the remainder by $1,000. It means your loan amount only needs to account for $9,000. You won’t need to borrow the full $10,000 and pay interest on this amount.
3 Methods to Save and Leverage Savings for a Car Down Payment
Down payments are, therefore, beneficial for many reasons. So, how can you build one? Consider the three methods to save and leverage savings for a car down payment gathered by our professionals just here.
Trade In Your Current Car
One easy way to reduce the down payment is to trade in your current car. You will receive a reasonable sum if your car is still in good condition. You will be able to make this arrangement with your car dealer.
Start by determining the car’s value. Then, take your car to the dealership. Your dealer will check the car’s value; they will evaluate the car and offer you a trade-in price. You can agree to the suggested price and accept this value. The value will go toward your new car’s purchase price.
With trade-ins, you reduce the amount you have to pay for the vehicle. You also reduce the bad credit car loan principal amount. This is not a direct way to save towards down payments. Rather, it reduces the amount you need to pay overall. It means that you may be able to pay less in terms of the down payment in proportion to a lower purchase price.
Sell the Parts of Your Current Car
On the other hand, your existing vehicle may be older. You may struggle to trade it in or get a high value when you sell it. Yet, you’ve still got one option. You can sell the parts of your current car for funds.
Many online websites facilitate this process. You offer the parts and can receive a decent sum from individuals looking for the parts. The funds you get will depend on the quality of the parts. Yet, this can be worth a significant sum for your down payment.
For instance, remember that you may be lucky enough to receive between $300 and $500. You can easily add this to your savings and begin building the down payment.
Create an Automatic Deposit Savings Account
An automatic deposit savings account will help you build a down payment. This account facilitates depositing a portion of your income toward your savings.
Month after month, a portion of your income will be deposited into your savings. Since the deposit happens automatically, you will avoid spending your income. Automating this process also means you’ll never forget to make a deposit. Combining these cumulative savings and your current vehicle’s trade-in value, you will have sufficient funds to pay down for the car you aim to buy in the car inventory.
Apply for a Bad Credit Car Loan from Car Loan Masters to Finance Your Car
At Car Loan Masters, we have flexible car loan options. If you need an auto financing option and want to contribute a down payment, we can support this. These options mean you can reap the rewards that down payments offer you. Alternatively, we also provide $0 down payment options. If you lack sufficient savings, this option may suit your requirements.
Whether your finances are in excellent shape, you have a bad credit score, or you cannot afford a down payment, Car Loan Masters has the answer you need. Apply for a bad credit car loan via Car Loan Masters to finance your car. Reach out to our professionals for more information and make your application today.