When buying a new car in the modern day economy you tend to be looking at upwards or £20,000. That is a lot of money to be lying around and not everyone has it, but there are options out there like car finance which allows you to spread the cost over a certain period of time usually between 2 and 7 years.
When purchasing a new car, you would usually need to place down a deposit. This isn’t usually tens of thousands of pounds but the upfront cost of around 10% of the cars whole price. This is very common for both hire purchase and PCP finance agreements. But sometimes we don’t always have the deposit, however, that still means there are options out there for you!
There is a possibility that you will be able to apply for car finance without putting a deposit down.
Car finance and how does it work?
Car finance is the agreement put in place to allow you to purchase a vehicle without having to pay the full amount right there, right now. Finance is a lot more common now than what it was as it is more readily available.
There are two most common types of car finance deals, these are hire purchase and personal contract purchases. Usually, these both have an upfront cost which is normally 10% of the whole price.
Hire Purchase is when you apply for a vehicle, a deposit is usually put down and then your repay the loan which includes interest. And this is repaid over an agreed length of time. Once you repay the full amount then you will then own that vehicle. Whereas Personal contract purchases you pay monthly but you don’t own the vehicle at the end, you can either return the car or make what’s called a balloon payment which is a large lump sum at the end and then you own the vehicle, or alternatively you can start a new PCP agreement.
Not everyone has the 10% deposit that is usually required to purchase a new vehicle on a finance agreement. This isn’t always an issue, there are possibilities where you can get car finance without having to put the 10% deposit down.
Is no deposit car finance an option?
Yes, this is an option! You have the option that you can drive off in a new car without paying the upfront 10% deposit, However sometimes you have to pay a fee to hold the vehicle as a reserve, this means that the vehicle can be taken off of the sale. The first payment you will usually make will be the 30 days after you have bought the vehicle.
Not putting down a deposit for your vehicle often means your monthly payments are often higher and the interest rates are also often higher. This means your overall costs will be higher, however, this means that you don’t have to put down a deposit on the vehicle you have chosen. The most used way of getting a car finance agreement without a deposit is through PCP arrangement. You can get it on HP but it is a lot rarer, so PCP is the most common arrangement. Try our HP finance calculator here.
Another way would be to get a personal loan. You can then use this loan to pay for your new vehicle as these don’t need upfront deposits. But again it can often mean the interest rates will be a lot higher when repaying.
How do you qualify?
This isn’t available for everyone, trying to get car finance without putting a deposit down is usually only offered to people who have good credit and have a history of on time repayments on previous loans. The interest rates may be higher though as lending a large sum of money without a deposit means the lenders have to know you are reliable and are likely to make the repayments on time.
All applicants are put through an affordability test. An affordability test is run by the finance companies to ensure that you can make the repayments comfortably. This is why you have to show that your income is high enough to be able to afford the repayments. The lack of deposit means I higher rate of lending for the vehicle hence the affordability check.
What are the advantages and disadvantages of no deposit car finance?
Advantages of no car deposit:
- No upfront cost: so can buy the vehicle and drive away the same day
- No payments for 30 days after the purchase of the vehicle
- Means you can spread the cost of the vehicle
- Can make vehicles more accessible
Disadvantages of no car deposit:
- The monthly payments are often higher than if you put a deposit down
- Most commonly found on PCP arrangements so the ownership of the car won’t be yours at the end of the repayments unless you want to pay the large balloon payment at the end to which then you would own the vehicle.
- If you decide you want to trade in for a newer model or you no longer want the vehicle then you will be put into negative equity. This means that you will have to pay out of your own pocket.
- It’s only available if you have good credit
- The monthly payments are often higher so you will have to have a higher income to pass the affordability test.
So the answer is yes! You can apply for car finance without a deposit depending on if your credit rating is good enough and if you pass and affordability test. We have a good relationship with our outside finance companies.
The Car Finance Companies provide you with a massive selection of used cars and vans. We are based in Liverpool, Merseyside but can deliver UK wide. Check out our stock range and give us a call on 0151 523 4000 to get started on getting that dream car today!