If you’re looking to get a car on finance, you may be wondering what the advantages are of having a deposit to put towards your car finance payments. Whilst there are many deals that don’t require a deposit at the start, it can be worth weighing up the pros and cons of putting some money down at the start of your car finance agreement. Some drivers may need a car in a hurry, and don’t have time to save for a deposit or have any savings to hand and that’s ok, there are many no deposit deals. However, having a down payment at the start of your car loan can help to reduce your payments. Let’s take a look at car finance deposits in more detail and how they affect different types of agreements.

What is a car finance deposit?

A car finance deposit is a lump sum payment that is made by the customer at the start of the agreement. How much you put down for your deposit can depend on your own personal circumstances or the type of deal you choose. Most car finance deals with no deposit needed can be affordable but some can advise around 10% of the cars value. Putting down a deposit for car finance can help to lower the loan amount and also could see easier acceptances.

What are the benefits of having a deposit for car finance?

There are a number of reasons why both customers and lenders like to have a deposit contribution at the start of a car loan.

Borrow less money. When you put money towards your car finance payments, you are reducing the amount that you need to borrow from a lender. A smaller loan can be more manageable and could also see you get easier acceptances.
Lower monthly payments. When you reduce the loan amount by putting down a deposit, you can also benefit from lower monthly payment. Having a deposit can be a great idea if you have a low monthly budget.
Lower interest rate. Most car finance deals will include interest on top of the value of your car and getting the lowest interest rate possible is really important. A larger deposit can help to reduce your interest rate and stop you from paying more than you need to.

What if you don’t have a deposit to put down for car finance?

If you’re looking to get a car on finance, you’ll be pleased to know that you usually don’t need to have a deposit. Many cars on finance now come with no deposit to pay but it can be worth checking the terms of the agreement first. Many drivers don’t have a large disposable income to put towards getting a car and if you need a car in a hurry, you may not have time to save up. Opting to spread the cost of your car without a deposit can also leave you with more room to spend money on other things rather than a car finance deposit.

Is it better to have a deposit for hire purchase deals?

Hire purchase is a form of finance which is secured against the vehicle you choose. The value of your car plus interest and any other fees is equally split into monthly payments over your chosen term. Hire purchase deals can benefit from larger deposits because you are reducing the loan amount and then spreading the rest of the cost into monthly payments. If you’re looking to get a car on HP, saving up for a deposit can be a good idea.

Is it worth putting money down at the start of a PCP deal?

Whilst PCP is actually a form of hire purchase, it works in a totally different way. PCP car finance deals don’t spread the full value of your car and any fees into equal payments and instead holds a lot of the value until a final balloon payment at the end of the deal. Due to this, monthly payments tend to be lower than hire purchase agreement. In many cases, a deposit can be required at the start of PCP deals though. Usually within PCP deals, the deposit can’t be less than 10% of the cars Guaranteed Future Value. However, you could also consider part exchanging your current car if you have one to use as part of your deposit too. It can be possible to get a car on PCP with no deposit too but usually lenders or dealers reserve these deals for people with excellent credit and can be hard to obtain if you’ve missed payments in the past.