Saying that having no down payment is “bad” can be a little subjective. However, no one is likely to tell you that you shouldn’t have one, especially if you have bad credit. In fact, it’s likely to be a requirement with most bad credit auto lenders.
Your Credit and Down Payment Requirements
If you’re looking at financing your next vehicle, then you’ve likely heard that you should have a down payment, and it’s good advice. But if you don’t have the cash for a down payment, is it bad? Maybe, but it can also depend on your credit situation.
If you have good credit, a down payment may not be required by the lender. Whether or not you need one can also depend on how much financing you qualify for. If the car you want is $12,000, but you only get approved for a $10,000 auto loan, then you need a $2,000 down payment to get into that specific vehicle.
If you have poor credit, though, odds are you’re required to have a down payment in order to be considered for a car loan. Bad credit auto lenders typically require at least $1,000 down or 10% of the vehicle’s selling price (sometimes whichever is less) if you want to be in the running for a car loan.
The biggest reason that lenders ask borrowers to have down payments is that they prove that you’re invested in the auto loan – aka skin in the game. Borrowers who put cash down have a better track record of completing their car loans successfully, which is great for the lender and for you.
When you have less than perfect credit, a lender may be hesitant to approve you for an auto loan. With a down payment, however, it shows you’re willing to put your own cash on the line, which improves your chances of a car loan approval.
Why Having a Down Payment Is Smart
Down payments can protect you from negative equity, lower your monthly payment, and lower your interest charges over the course of your loan. In other words, having money to put down now can save you cash and headaches later.
Putting money down allows you to avoid negative equity by financing less right off the bat. Negative equity happens when you owe more on the vehicle than it’s worth. A few things can lead to negative equity, like having a high interest rate, or if the car loses value quickly (like new vehicles tend to do).
Down payments can also lower your car payments, since you’re financing less from an auto lender. Additionally, with a lower initial loan amount, there’s less to be charged interest on. Nearly every car loan nowadays uses simple interest, meaning you’re charged interest on what your remaining balance. The less you owe to the lender, the less you pay in interest charges.
For borrowers with bad credit, high interest rates are often a concern. Those with lower credit scores are typically assigned higher rates, but a down payment can help combat those extra interest charges.
How Much Should I Put Down?
When it comes to how much you should put down, a good rule of thumb is to strive for at least 10% of the vehicle’s selling price. If you’re looking at purchasing a brand-new car, aim for around 20%. New vehicles have a much higher risk of being in a negative equity position at the beginning of the auto loan, since they depreciate very quickly in the first few years of ownership.
If you still owe on your trade-in, you need to pay off the remaining balance of your loan first. Then, you can use any leftover cash to put toward your next vehicle. If you own the trade-in free and clear, then the entire value can go toward your next auto loan.
Where Can I Find Bad Credit Car Loans?
Having no down payment and bad credit can mean bad news if you’re looking to take on a car loan. A down payment is great for any borrower, since it saves you cash over time and increases your chances of getting into an auto loan. However, even with a down payment and the income to pay for a car loan, lenders still may turn you away for financing if your credit score isn’t quite up to par.
There are auto lenders that work with borrowers in all sorts of unique credit situations, called subprime lenders. They’re signed up with special finance dealerships, which are located all over the country. Pinning one down, though, can be a little bit of a challenge, but that’s where we come in.
Here at Auto Credit Express, we’ve already located the dealers that have bad credit lending resources. To get matched to a dealership near you that works with subprime lenders, fill out our free car loan request form.
After 70 years in Monterey County, 87-year-old Mary Martinez moved in the middle of a pandemic, evicted from her modest one-bedroom, second-floor apartment at 1118 Parkside St. in north Salinas.
According to her former landlord, Martinez was evicted because she allowed a “violent man” to live with her, violating the conditions of her lease. Martinez said the man is her epileptic nephew.
Advocates say that while evictions like Martinez’s are rarer during the pandemic, landlords are feeling the financial squeeze. Some have sold rental properties to make up for lack of income. That can leave renters out in the cold when their new landlord raises the rent by hundreds of dollars or requires all renters move out before they take over the building.
“I don’t want to leave”
Nearly half the housing units in Monterey County are renter-occupied and of those renters, about half pay 35% or more of their monthly income in rental costs, according to American Community Survey (ACS).
The same data shows people of color tend to be renters rather than homeowners. People ACS data identified as Hispanic, Latino or Mexican –– such as Martinez –– make up the largest body of renters in the county.
Martinez does not deny violating her lease agreement but said her landlord was looking for an excuse to kick her out since March when he bought her building.
She also said she believed her status as a Section 8 recipient made her a target, an assertion her landlord denied.
According to Martinez, he soured on her after her epileptic nephew suffered a seizure in the bathroom, leaving emergency crews to break down the locked door. Martinez paid about $70 to replace the door, she said
In June, she received a 90-day notice to evict.
“I don’t want to leave,” Martinez said through tears during a July interview. Her voice quavered. She sat on her living room couch, her shoulders slumped.
In August, she closed the door to apartment 10 behind her for the last time.
“Keep the house housed”
At the state level, Assembly Bill 3088, co-authored by California State Senator Anna Caballero (D-Salinas), keeps renters facing hardship due to COVID-19 in their homes.
The legislation, signed by Gov. Gavin Newsom in August, states tenants who have provided qualifying declarations of hardship can’t be evicted before Feb. 1, 2021.
Monterey County, like other counties, passed a similar moratorium early in the pandemic, extending it multiple times to keep it alive until the state legislature could find a solution.
Martinez is not the only person to be evicted or lose their housing during the pandemic. The moratoriums dealt with eviction for nonpayment of rent, not of someone in violation of their lease, as Martinez was. Others saw their landlords sell to new owners who raised the rent an untenable amount.
Far fewer people have been evicted during the pandemic than anticipated, said Joel Hernández Laguna, the lead organizer for Center for Community Advocacy’s (CCA). But in recent months, CCA received a higher-than-usual number of calls about people being forced out of their homes due to rent increases.
“You have to see the other point of view,” said Hernández Laguna, who has worked for CCA for almost nine years. “Some landlords are struggling to make payments on properties they rent out.”
He suspects that resulted in higher property turnover than normal. New owners often stipulate in the purchase contract that all tenants must move out upon sale of the property, or raise the rents so much the current tenants can’t stay, Hernández Laguna said.
“Landlords aren’t able to evict people with the current ordinances so instead are (increasing) the rent,” he said. “Which is another way of pushing them out indirectly.”
Matt Huerta, Director of housing at the Monterey Bay Economic Partnership (MBEP), said housing stakeholders are raising the issue of eviction and housing in MBEP group discussions.
“Our overarching message has been to keep the housed housed,” Huerta said. “Unless it’s a health and safety problem – in terms of the tenant creating a health and safety problem – everyone should be motivated to prevent a large health and safety problem to prevent evictions that will lead to crowded housing and homelessness.”
Phyllis Katz, directing attorney at California Rural Legal Assistance (CRLA) of Monterey County, said while CRLA had not seen any eviction cases during the pandemic, an eviction could lead to the same – or worse – consequences for someone.
“People acquire bad credit by being evicted,” Katz said in an email.
That bad credit can follow renters and can result in their wages being garnished to pay off debts or keep them from renting on their own. The cost of applying to apartments can be prohibitive, too.
“It costs $30-$50 for each application for housing,” Katz said. “People stay with relatives if they can, or in their car, if they can’t until they find housing.”
That can put people at risk, Katz noted.
“Families who go live in crowded conditions with another family are more prone to contracting COVID-19, and suffering illness as a result,” he said.
Health experts say this creates a prime environment for the coronavirus to spread throughout a household.
A June analysis by The Californian and CalMatters showed the hardest-hit neighborhoods had three times the rate of overcrowding and twice the rate of poverty as the neighborhoods that suffered the least. The neighborhoods with the most infections are disproportionately populated by people of color.
“People end up in that situation because they don’t want to become homeless,” Hernández Laguna said. “Families are willing to share an apartment complex or bring someone else into their home to pay the rent. One of the consequences of being evicted is having to overshare a property.”
Personal and financial loss
At first glance, you wouldn’t know Martinez is in the latter half of her ninth decade.
Before the pandemic, she walked to church almost every day for services. When she lived in Salinas, she’d walk to a nearby grocery store to purchase food, and carried it home herself, two blocks and up a flight of stairs.
Martinez’s age puts her at a higher risk of complications from COVID-19, should she contract the virus.
An eviction increases the odds she might encounter the virus, as she is no longer able to safely isolate herself, and moved three times in fewer than two months. Her sisters, who hosted Martinez following her eviction, are also at increased risk. Both women are in their 70s.
Martinez eventually moved to Pueblo, Colo. to stay with her younger sister, Esther, 76.
In the midst of all this, Martinez is struggling with the loss of her nephew, Greg Palacios.
Palacios was diagnosed with cancer shortly after his seizure in Martinez’s bathroom. He moved into hospice care and died over the summer.
Martinez cried as she talked about his death. She was unable to visit him while he was in care hospice due to pandemic-induced restrictions on visitors.
Martinez is wrestling with financial concerns as well.
She can’t afford a new apartment without the six weeks’ worth of rent, she told The Californian. She has little in the way of savings – she never married and worked mainly as a babysitter and a housekeeper.
While she hopes to keep her Section 8 status, she doesn’t know how moving out of state will impact her.
Furthermore, Martinez said she did not receive her deposit back when she moved out and was owed two weeks’ rent.
When reached by phone, her landlord introduced himself as “Pete.” He confirmed he had been Martinez’s landlord, but refused multiple times to give his last name, or say how long he had owned the property.
According to Monterey County Assessor records, 1118 Parkside St., the complex where Martinez used to live, was purchased by Ace Organic in March of 2020, which is headquartered in Salinas. An LLC-12 Statement of Information filed with the Secretary of State shows Peter Quinlan King as the owner of Ace Organic.
King told The Californian he worked in conjunction with the Housing Authority to evict Martinez, informing them on “everything, step by step.” He also pointed out that he had multiple Section 8 tenants on the premises.
“Mary had a violent and unauthorized tenant living there, so that was cause for eviction,” King said when reached for comment.
According to Monterey attorney David Brown, who handles civil matters between landlords and tenants, if Palacios had been on the lease with Martinez, it likely would have been unlawful to evict them due to his seizure.
As Martinez paid for the damage done to the door, Brown said, that might have violated the Americans with Disabilities Act.
“I don’t know for sure but…assuming that was the landlord’s motivation, yeah, that would probably violate the ADA,” Brown said.
King declined to comment further on Martinez’s eviction, or if he planned to return her deposit.
Although Martinez reached out to the Housing Authority for help and spoke regularly with her caseworker, she found herself confused as to whether she truly had to move out, or if her eviction notice was just a warning.
She moved out in August but still had doubts at the time of her departure.
Hernández Laguna urged people facing eviction or unanticipated rent increases to reach out to his organization or CRLA for help.
“Seek help,” he said. “There are protections out there for families.”
In Pueblo, Martinez found a new home with her sister Esther, though she doesn’t like the cold that’s begun to settle in for the Colorado winter.
Esther says she hopes Martinez will stay with her. Pueblo had a low rate of COVID-19 compared to the rest of Colorado, but in recent weeks has seen cases rise. Still, Esther said she feels she and Mary are safe from the virus there.
“I think Mary’s going to stay here,” said Esther. “We’ll go to California to visit.”
Kate Cimini is a reporter with The Salinas Californian. This article is part of The California Divide, a collaboration among newsrooms examining income inequality and economic survival in California.
ATLANTA _ Many Black entrepreneurs struggle to get bank loans and professional help to launch new businesses. A new program aims to remove those stumbling blocks.
An Atlanta nonprofit and another business have committed $150 million to the 1 Million Black Businesses effort, which will make loans and provide financial and business advice to Black-owned startups and established small businesses. Atlanta-based nonprofit Operation Hope, which helps consumers improve credit scores, is kicking in $20 million, and Shopify, the online e-commerce is adding another $130 million for the loans and website-hosting services.
Other services firms providing expertise or help include Aprio, an Atlanta-based accounting firm, and First Horizon Bank.
It’s a package of products that many Black entrepreneurs couldn’t get through a bank or credit union, said John Hope Bryant, CEO of Operation Hope.
“A bank won’t lend you money unless you can prove that you don’t need it,” Bryant said. “That’s especially true with minority-owned small businesses.”
Small businesses with Black owners were half as likely to obtain business loans as whites, according to a Federal Reserve survey published earlier this year.
The initiative is the latest effort to help Black consumers and businesses enter the financial mainstream. Earlier this month, a group that includes rapper Killer Mike opened a digital bank aimed at Black and Latino consumers.
Banks and credit unions have tried for years to help Black consumers open checking and savings accounts. The efforts helped, as the number of U.S. households without bank accounts fell to 5.4% in 2019 from 6.5% in 2017, the Federal Deposit Insurance Corp. said Monday.
Consumers who own checking and savings accounts typically have access loans with better rates and a wider variety of financial services.
The federal government’s $660 billion loan initiative for businesses hit by COVID-19, the Paycheck Protection Program, also helped few Black-owned businesses, Bryant said. PPP loans were based on a company’s number of employees and its rent obligations. many Black-owned small businesses typically didn’t have enough workers to qualify and are based out of the owner’s residence.
Bryant said a bad credit history may not prevent applicants from receiving a loan.
He hopes more companies will contribute services such as insurance advice or software typically available only to well-established businesses.
Bryant noted that 1MBB is not a charitable organization, as participating companies like Shopify will likely get a pipeline of new business customers through the program.
“This is not pure philanthropy,” he said. “Shopify believes that Black-owned businesses are good businesses if they’re properly supported.”
The final days of October offer a chance to take advantage of outstanding model year-end deals. Most offers end November 2, which means there isn’t much time left to enjoy this month’s best lease deals and deepest new car discounts. We even found incentives that can help those with bad credit buy a new or used car.
Why are small cars bad to lease? Even though smaller cars typically come with lower price tags, that isn’t always the case when leasing. A mix of lower discounts, worse residual values, and smaller discounts can actually make a Nissan Altima cheaper than a Versa despite having an almost $10,000 difference in MSRP.
Shorter-mileage leases. More brands are offering shorter mileage allowances on car leases. Although this is typically used to offer consumers more flexibility, we’ve found cases in which you can end up getting less for your money. If you don’t read all the fine print, this could make comparison-shopping difficult.
$0 down leases. If you’re adamant about now putting down any money on a lease, you’ll love Sign & Drive leases. In addition to requiring no money down, $0 down lease deals can cover your first month’s payment. Even hot sellers like the Honda CR-V Hybrid offer $0 down and as little as $330/month on a lease.