Bad credit does not lock you out of buying, but it raises your down payment
Lenders use your credit score to decide how much risk they are taking on you. A lower score means they want more of your own money in the deal before they lend you the rest. With bad credit—typically a score below 620—you will usually need to put down 10 to 20 percent of the purchase price, compared to 3 to 5 percent for borrowers with good credit. Some lenders will go lower, and some will not lend to you at all at that score range.
The exact amount depends on the lender, the type of loan, and what you are buying. A car loan works differently from a mortgage. A mortgage lender has different rules than a credit union. The down payment is not the only cost that changes with bad credit—your interest rate will be higher too, which means you pay more over the life of the loan. But the down payment is what you need to have saved before you walk in the door.
Key Takeaways
- Bad credit typically requires a down payment of 10 to 20 percent, roughly double what borrowers with good credit pay.
- The exact percentage varies by lender and loan type; some credit unions and FHA-backed mortgages have lower minimums than conventional lenders.
- Your down payment and interest rate both rise with bad credit, so the total cost of borrowing increases significantly.
- Saving a larger down payment can sometimes offset a low credit score enough to get approved, or lower your interest rate by a full percentage point or more.
- Co-signers, secured loans, and credit-builder products can open doors when your score alone will not.
How lenders calculate down payment requirements by credit score
Lenders group borrowers into score ranges and assign a down payment floor to each range. A score of 740 or higher typically qualifies for 3 to 5 percent down. A score between 620 and 680 usually requires 10 to 15 percent. Below 620, many mainstream lenders will not lend at all, or will demand 20 percent or more. Some lenders have no minimum score but charge much higher interest rates instead of raising the down payment.
The reason is simple: a larger down payment means the lender loses less money if you default and they have to sell the asset. If you put down 20 percent on a house and stop paying, the lender can foreclose, sell the house, and recover most of their loan. If you put down 3 percent and default, the lender may lose money even after selling. Bad credit signals higher default risk, so lenders shift that risk onto you by requiring more cash upfront.
Credit score is not the only factor. Lenders also look at your debt-to-income ratio, employment history, and the size of your down payment relative to the purchase price. A larger down payment can sometimes make up for a lower score. If you have bad credit but can put down 25 percent, you may get approved where 10 percent would have been rejected.
Down payment ranges for cars, mortgages, and personal loans
| Loan Type | Good Credit (740+) | Fair Credit (620–680) | Bad Credit (Below 620) |
|---|---|---|---|
| Car loan | 0–10% | 10–20% | 20–30% or no loan |
| Mortgage (conventional) | 3–5% | 10–15% | 15–20% or denied |
| Mortgage (FHA) | 3.5% | 3.5% | 3.5% (if score 580+) |
| Personal loan | 0% | 0% | Unsecured: denied; secured: 50%+ |
Car loans are the most flexible. Subprime lenders (those who specialize in bad credit) will finance cars with down payments as low as 10 to 15 percent, though interest rates can reach 15 to 29 percent. Some buy-here-pay-here dealers require 30 to 50 percent down but do not check credit at all.
Mortgages are stricter. Conventional lenders rarely go below 10 percent down for bad credit. FHA loans, backed by the Federal Housing Administration, allow 3.5 percent down even with a score as low as 580, but you will pay mortgage insurance premiums for the life of the loan, which adds hundreds of dollars per month. USDA and VA loans have their own rules and may not require a down payment at all, but you must meet other criteria (rural property for USDA, military service for VA).
Personal loans almost never require a down payment, but with bad credit, unsecured personal loans are hard to get. Secured personal loans—where you pledge savings or another asset as collateral—may require you to put up 50 percent or more of the loan amount as security.
How a larger down payment can offset bad credit
Putting down more than the minimum can move you from denied to approved, or lower your interest rate by 0.5 to 2 percentage points. A lender sees a large down payment as proof you are serious and have skin in the game. It also shrinks the loan amount, which reduces their risk.
If you have a score of 600 and a car lender wants 20 percent down, but you can save 30 percent, call the lender and ask if the higher down payment changes the terms. Many will say yes. On a $20,000 car, the difference between 20 and 30 percent down is $2,000, but it might save you 2 percentage points on interest—which could mean $3,000 to $5,000 over a five-year loan.
The same logic applies to mortgages. If you can scrape together 15 percent instead of 10 percent, some lenders will approve you where they would have denied you at 10 percent. Others will keep the same approval decision but lower your rate. Ask before you assume the minimum is your only option.
Co-signers and secured loans as alternatives
A co-signer is someone with good credit who signs the loan alongside you and is legally responsible if you do not pay. Adding a co-signer can lower the down payment requirement by 5 to 10 percentage points, or get you approved when you would have been denied. The trade-off is that the co-signer's credit is on the line, and the loan appears on their credit report, which can hurt their score and their ability to borrow.
Secured loans use an asset you already own—a car, savings account, or other collateral—as insurance for the lender. If you default, the lender takes the asset. Secured loans often require little or no down payment because the collateral is the security. A credit-builder loan, offered by credit unions and some banks, lets you borrow a small amount (usually $500 to $2,500) that sits in a locked savings account while you make payments. You build credit history and savings at the same time, and the down payment requirement is zero because the money is already there.
What happens to your interest rate when credit is bad
Down payment is only half the story. Interest rates for bad credit are significantly higher. A borrower with a 740 score might get a car loan at 5 percent; a borrower with a 600 score might pay 15 to 20 percent. On a $20,000 car loan over five years, that difference is roughly $4,000 in extra interest.
Mortgages follow the same pattern. A 740 score might get 6.5 percent; a 600 score might get 8 to 9 percent. On a $300,000 mortgage over 30 years, that 1.5 to 2.5 percentage point difference adds $100,000 to $200,000 to the total cost of the house.
This is why a larger down payment can be worth the effort. It reduces the loan amount, which means the higher interest rate applies to less money. It also signals to the lender that you are less risky, which sometimes results in a lower rate. Before you borrow, calculate the total cost, not just the monthly payment.
Steps to prepare for a down payment with bad credit
Start by checking your credit report at annualcreditreport.com, the only free source authorized by federal law. Look for errors—wrong accounts, incorrect balances, or accounts that should have fallen off. Dispute any errors you find; correcting them can raise your score by 10 to 100 points in a few months.
Next, get pre-may have access to by multiple lenders. Pre-qualification is free and does not hurt your credit. It tells you what down payment and interest rate you can actually get, not what the lender's website says in general. Call a bank, a credit union, and a subprime lender if you are buying a car. Call a mortgage broker, an FHA lender, and a credit union if you are buying a house. The quotes will vary.
Save aggressively toward your down payment. Even an extra 5 percent can change the terms. Set up automatic transfers to a separate savings account so the money does not get spent. If you are buying a car, aim for 15 to 20 percent. If you are buying a house, aim for 10 to 15 percent if you can, or 3.5 percent if you are using an FHA loan.
Consider a credit-builder loan or secured credit card while you save. These products report to the credit bureaus and can raise your score 30 to 100 points in six to twelve months. A higher score at the time you apply for the real loan can lower your down payment requirement or interest rate.
Frequently Asked Questions
Can I get a mortgage with bad credit and no down payment?
No conventional lender will do this. FHA loans allow 3.5 percent down with a score as low as 580, which is the closest option. VA and USDA loans have zero-down options, but you must meet may be able to access criteria (military service for VA, rural property and income limits for USDA). If you cannot save 3.5 percent, you are not ready to buy yet.
What if I have bad credit but a large down payment saved?
A large down payment—20 percent or more—can get you approved even with a score below 620, or lower your interest rate by 1 to 2 percentage points. Always tell the lender your down payment amount upfront; do not assume the minimum is your only option. The larger the down payment, the more negotiating power you have.
Does paying off debt before applying help lower the down payment?
Yes, but only if it raises your credit score. Paying off old collections or maxed-out credit cards can improve your score by 20 to 100 points in a few months. A higher score at application time can lower your down payment requirement. However, do not close old accounts after paying them off; closing accounts can actually hurt your score.
Will a co-signer let me put down less money?
Usually yes. A co-signer with good credit can lower your down payment requirement by 5 to 10 percentage points and may lower your interest rate as well. The trade-off is that the co-signer is legally responsible for the loan if you do not pay, and the loan appears on their credit report.
What is the difference between a down payment and a deposit?
A down payment is money you give the lender as part of the loan process; it reduces the amount you borrow. A deposit is money you give a seller or dealer to hold the item while you arrange financing. Deposits are usually non-refundable if you back out, while down payments are part of the purchase. Do not confuse the two.