When it comes to financing the purchase of a new car, there’s often one thing you need to think about before you apply for any type of package: the deposit.
Whether it’s a lump sum you’ve saved up, or your existing car you want to part exchange, having something you can use for a deposit can help you get the finance package you want.
But what if you don’t have a deposit? Maybe you don’t have the spare cash to put down in advance, or your previous car is destined to be less of a part-exchange, and more of an ugly addition to the nearest scrapheap.
Can you still get a car finance package without a deposit?
The good news is that no deposit car finance exists, and has been designed for people just like you.
In this article, we will explain what it means, how it works, and the pros and cons of choosing this way to finance your car.
The way car finance works is based on a number of principles. But the main one that the finance provider uses is by assessing how much of a risk you are to lend money to.
This will primarily be assessed through your credit rating, so it’s important your credit rating is either excellent, good, or in the process of being repaired (more on this later).
The other way is through the deposit. Lenders will look normally look more favourably on individuals with a deposit, as this effectively acts as a safety net for the lender. In the unlikely event that you’re no longer able to continue your monthly repayments, the lender is normally entitled to keep your deposit. If you haven’t paid a deposit, the lender will have nothing to cover their financial loss.
No deposit car finance works much the same as a normal car finance package. When you apply online most finance companies, including Creditplus, will ask how much you wish to pay as a deposit. If you haven’t got funds for a deposit, simply enter the amount as £0.
Whether you want a Personal Contract Purchase (PCP) car finance package, or a Hire Purchase (HP) package, having no deposit is not a deal breaker. But what it will do is increase the cost of your monthly payments.
In a PCP package, the amount you repay across the finance agreement is the difference between the value of the car at the start of the agreement, and the value at the end (plus any interest charged by the provider). You’re effectively paying off the depreciation.
By paying a deposit, you will reduce the amount you need to pay, so your monthly payments will be lower and also the amount of interest you pay. You should be aware that most Personal Contract Purchase agreements require a 10% deposit to be approved. Ask one of our car finance specialists to see if they can help you find a no deposit car finance package on this product.
Hire Purchase works much the same, albeit you pay off the entire cost of the car across the agreement. Again, a deposit helps reduce the monthly repayments, meaning you pay less across the agreement.
Although your monthly repayments may be higher without a deposit, it still has plenty of appeal.
For example, let’s say you recently changed jobs and now have more disposable income than before.
You may want to treat yourself to a change of wheels, and you can use the extra income to help towards the finance package, with the slightly raised monthly repayments being cancelled out by the greater income you have.
Or perhaps you just haven’t been able to save up for a deposit or need to get a new car before you have time to save up a lump sum. This is when no deposit finance becomes an attractive option.
The key thing here is your credit rating. By having a good or excellent credit rating, you can prove that you are a reliable prospect to a potential finance provider.
If your credit score is less than perfect, you may want to look at how you can improve your rating, as it will likely be more difficult to get accepted for a no deposit car finance package with poor credit.
You can check your eligibility for no deposit car finance, without affecting your credit score, using our online eligibility checker today.
There is a misconception that when you apply for a car finance package, if you decide to change your mind, you can end up losing your deposit. This is not the case if you apply with a company that is FCA regulated, such as Creditplus.
FCA approved finance companies provide a 14-day money back guarantee on all finance packages. This includes the deposit. While you may be charged for some admin fees, you will not be issued with any penalty, providing you cancel within the 14-day cooling off period as stipulated in the Consumer Credit Act 1974, amended in 2006.
Having a deposit can help you get a more affordable car finance package and save you more money in the long-term. If you don’t have the funds available – don’t worry. We can still help you obtain an affordable finance package for a new car.
Simply Apply Online and one of our car finance specialists will be in touch.