This is truly a great question and, unfortunately, there is no great answer to be had. The best answer is…it depends on the person buying the vehicle, including their credit score, budget, and vehicle being financed.
Factors To Consider
There are several factors that you should consider when deciding if you need a down payment in addition to your trade-in. A few of those are: your credit score, monthly payment, and length of the loan. Lets look at a few points for each.
Credit score…there is a lender either in your home town or online that will consider your credit score, even if it is as low as 500. That is great news. You can get the auto loan you need, but there is a catch. Borrowers who have a credit score above 670 can breath easy. Your score is high enough to use your trade as your down payment and go home with a new car. On the other hand, borrowers who have a score that falls under 620 (there is a gray area between 620 and 670) may be required to add a bit of cash to their trade to secure the car loan that they need. The further below 620 that you score falls, the chance that you will need a cash down payment in addition to your trade increases.
Monthly payment…the monthly payment that you are comfortable with will be directly affected by adding a cash down payment to your trade-in. Obviously, the more you pay down will lower your score, but did you know that a lender may require cash in order to ensure that your monthly payments do not exceed what they think you can afford? Lenders look at your debt-to-income ratio or DTI. If it is too high with the new payment included, they will either ask you to offer a cash down payment or deny your loan.
Length of the loan…while 72 to 84 month car loans are becoming more common, they rarely make sense. Occasionally a shorter loan length will make the monthly payment too high to be manageable, so the solution is to offer a cash down payment in addition to your trade-in.
In the end, it may be a personal choice to offer a trade and cash, but even if you have a credit score that is high enough that you are not required to offer a down payment on top of your trade-in, it often makes financial sense to do so.