Buying a car on finance can be a helpful way to spread the cost and make sure you’ve got a motor that suits your needs.
But what should you do if you’re struggling to get a loan, either due to lack of savings or a poor credit rating?
Well, there are actually several options available for people looking to secure car finance with no deposit. And not having a deposit is no longer automatically seen as a red flag for lenders. Let’s take a look at how no deposit car financing works…
Why do dealers ask for a deposit?
It’s no surprise that car dealers have traditionally liked to receive a deposit or down payment from their customer. The more money they can receive upfront, the more secure they feel. Paying a deposit to take the car off the market before purchase means that they don’t risk losing money by taking the listing down. And taking a down-payment means that there is less overall financial risk should the customer stop making repayments.
It’s not all about the lender, though – there are benefits for the customer too. Higher deposits mean smaller monthly repayments, and can often help you to secure lower interest rates. A deposit can also be used to bring down the length of the contract, meaning that you’ll have paid off your loan more quickly.
However, this doesn’t have to mean that not having a deposit is a problem. It’s more a matter of personal choice and financial circumstances. Some people prefer to hand over a chunk of money upfront and keep costs down over time. Where that’s not possible, it’s perfectly reasonable to take out a larger loan and spread the cost over monthly repayments.
Working with specialist companies
You may have been turned down by some of the more mainstream car financers, but did you know there are actually companies out there dedicated to helping customers in this situation? A specialist car finance company will understand that no deposit or bad credit doesn’t have to be a barrier. And since this is their specialism, they’ll also be able to offer advice and information to help you ensure you get a good deal. Specialist lenders can provide both no deposit and low deposit loans, tailoring it to meet your budget.
Personal Contract Purchases
One of the more common types of car loan is a ‘Personal Contract Purchase‘ (PCP). This is a popular new type of financing deal, which brings together a purchase loan and a leasing arrangement. Essentially, you make monthly payments at a lower amount, meaning that you don’t pay off the full value of the car over the loan period. When you finish making repayments you can either pay what’s known as a balloon payment (a larger lump sum) to keep the car, give it back, or take out a new financing deal. PCPs do often require a deposit, but usually at a far lower rate than traditional car financing.
Qualifying for car finance with no deposit
If you do want to go down the no deposit route, you’ll need to make yourself attractive to the lenders. This means passing affordability tests, so you’ll need to be able to show that you have enough income to cover the repayments. It’s really important that you choose a car that’s within your budget – meaning that you feel confident that you can comfortably make repayments. This isn’t just crucial for securing your deal, but also for ensuring that the car repayments don’t have a negative impact on your overall financial situation.
You’ll also need to show a clean credit score and a history of making repayments on time, as this will limit the risk to the lender. We’ve mentioned bad credit car financing above, and this is definitely available. However, it’s usually an either/or situation: higher deposits can be used to reassure lenders when your credit rating is low, while a decent credit score mitigates the risk of a low deposit.
What are the pros and cons for borrowers?
If you’re able to pay a deposit then it’s usually wise to do so, as it will bring the overall cost of your purchase down. However, no deposit car financing comes with the huge benefit of making it possible to get behind the wheel even if you don’t have any money saved. As with all financial decisions, it’s important to take some time to weigh up the options so that you can come away with a deal that feels good.