Q&A with OnlineLoans: Do I Need a Deposit for a Car Loan?

J. Richards

April 6, 2022

You asked, we answered.

Do you need a deposit for a car loan?

In short: No, usually you don’t but having one helps.

We go over a few things to consider if you’re thinking about buying a car on finance and wondering if you need a deposit for a car loan.

Key points
  • Generally, a deposit is a flexible amount, several thousand dollars for example, paid upfront which means you need to borrow less
  • The dollar amount of a deposit for a car loan varies per lender (eg. banks), the borrower, the type and value of the vehicle.
  • There are some situations where you might have to put forward a deposit to get finance approval
  • Paying a deposit can attract a few important benefits
Don’t get confused

There can be two different types of deposits when buying a car.

ONE: a deposit for a car loan, this is what we’re discussing in this article.

TWO: a deposit for the actual car, this is typically negotiated between the buyer and seller of a vehicle and comes off the agreed price. The purpose of this deposit is for the seller to hold the vehicle while the buyer arranges the remaining funds.

For example, a buyer and seller might agree on a sales price of $30,000. The buyer doesn’t have the full amount on them at the time of agreement so pays $300 to the seller who agrees (with written confirmation) to hold the vehicle until the remaining $29,700 is paid.

The seller might write “sold pending payment” on their ad online and let other interested buyers know that the vehicle is sold pending payment.

If the buyer doesn’t pay for whatever reason, the seller usually keeps the deposit money.

Sometimes, you do need a deposit for a car loan

Especially, with a bad credit car loan, you might find you actually need to pay a deposit in order to receive finance approval.

This can happen if a borrower’s credit score is low and lenders see them as a too high risk. The lender might come back saying that they will approve the car loan and transfer funds if the borrower can put forward a deposit, reducing the loan amount and negating some of the risk.

You can check your credit score through reporting agencies like Equifax.

In other words, a deposit can show a lender that a borrower is committing some of their own money to the loan and purchase of the vehicle and has some skin in the game.

There are a few benefits of paying a deposit for a car loan

People don’t pay a deposit if there aren’t a few reasons to do so, here are some benefits:

Lower repayments
You’ll decrease the amount you need to borrow, meaning lower scheduled repayments.

Better rates
A deposit usually means lower risk which can attract lower interest rates.

Increased loan amount
Sometimes a lender might offer a higher loan amount if the borrower pays a deposit.

Higher chances of approval
As mentioned above, a deposit can mean you have a better chance of getting approved in the first place.

You’ll own some of the vehicle straight off the bat
Something that some people miss is the fact that with a deposit, you’ll own a percentage of the vehicle as soon as you pick it up!

How much should my deposit be and do I need one?

As mentioned, deposit amounts are dependent on several factors:

  • The more you borrow, the higher (in terms of dollars) the deposit should be, ie; a $100,000 vehicle and $20,000 vehicle will attract different deposit amounts
  • The higher the risk of the lend, the higher the chances are that you’ll need a deposit, for example a borrower with bad credit buying an older vehicle
  • Recently employed borrowers or those asking for large loan amounts in comparison to their income may need a deposit
  • Borrowers who are looking for a lower interest rate than the one proposed to them might be able to use a deposit to lower interest rates
The next step

Finding out options and numbers matched to your circumstances is a huge help when looking at a car loan. In fact, knowing these things often helps people make the right decision suited to their needs.

As everyone’s financial situations and lifestyles are different, loan products, conditions and deposits vary from person to person.

Start with a quick quote to find out the numbers matched to your unique situation or, for a rough idea, play around with the numbers on our loan calculator.

Other Q&As with OnlineLoans that may help

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