Do I Need a Big Down Payment to Get a Car?

A car can make a big difference in your life. It may be the thing you need to get to a better job, go to school and work at the same time or get your kids from point A or point B. There are a couple things that have people worry about when it comes to their ability to purchase a vehicle—a down payment and credit.

How will credit affect your ability to get a car?

The good news is that credit plays a factor, but won't necessarily prevent you from getting a car—even if you have no credit or bad credit. There are dealerships out there that work on a slightly different system. Rather than having you apply for financing through a traditional bank, you can get financed through the dealership itself. This can help your situation. These dealerships are skilled at handling people with less than stellar credit numbers, or those who haven't been able to build their credit up yet.

Some of the things they will look at are your job, your income, your home and your down payment. Before you worry too much about the size of your down payment, it will be more important how the whole picture looks. They will try to get you into a car you can afford, and find a down payment that won't break the bank. However, it's still important to know the basics of vehicle down payments.

How big should your car down payment be?

There is no black and white formula that will give you the exact number for your down payment. It's really going to come down to a few factors. First off, if you are going for a new car, 20% down is pretty much the bottom line, and that may not be enough if your credit is challenged. With used, you have some leeway.

Before you get around to determining your down payment amount, there are some steps you should take to be prepared before heading into the dealership.

• Find out how your credit is. If you already know it's poor, think about ways to save up some money to make a down payment of some sort. Also, start working on your credit right away by making any payments you do have on time, or paying off some old debts.
• Assess a trade-in if you have it. If you currently have wheels, hit the blue book to find out what it's worth. It can act as some or all of your down payment. Beware of negative equity on your existing car, which means you may need a bigger down payment.
• Look at your money situation. If you have money in the bank, what is more important to you—do you want a lower monthly payment or to keep some money in the bank? A bigger down payment means lower monthly payments, and possibly a better interest rate.
• Look at the year of the vehicles your interested in. You will probably have more luck with a lower down payment if you're looking at older cars—especially if you're using in-house financing.

The philosophy these days, in an economically challenged time, is to make the highest down payment you can afford. What does that mean? Look at your situation. Can you afford a $500 down payment? $1000 dollars? Take whatever down payment amount you have and present it with all the information you have about your situation to the dealer. From there, they'll let you know what's possible.

You may have to save a little, but talking and asking questions can give you a number. Don't get discouraged—a car may be something you can get right away, or you may have to give it a month or two. At least have the information on hand.

The truth is, most people don't want to clean out the bank account to get a car—and you may not have to. Working with a dealer who has experience in handling many applications can give you the flexibility you need to get into a car with a doable down payment.

Photo Enokson | Used under Creative Commons image attribution license 2.0