How much deposit should I have for a used car?

Whether you choose a personal contract purchase or hire purchase deal to buy a used car, you’ll often be asked to put down a deposit. Don’t panic if you don’t have savings to put down upfront – no deposit car finance is available – but there are lenders that don’t provide loans that cover 100% of a car’s value.

There’s no exact figure that you should have as a deposit. In fact, the amount depends on a range of factors including your personal circumstances, the car you’re buying, and the type of car loan you choose. Even so, a 10% deposit is usually considered good when buying a used car, although you might want to stretch to 20% or more if you can.

And don’t forget, the deposit doesn’t have to be all cash. If you already own a car that you’d like to part-exchange, then this could cover all or part of your deposit.

How can your deposit affect your used car loan?

While it’s not always necessary, putting down a deposit could make it easier to secure a loan. It could also affect other parts of your agreement too. The size of your deposit could change the amount you have to pay back each month, the length of your repayment term, or the interest rate that you’re offered.

Why put down a larger deposit?

If you have some cash saved, you might be tempted to put down a larger deposit. There are many reasons why you should think about putting down more money upfront if you can, the first being that you’ll need to borrow less money. This could mean you can pay the loan back faster than you thought and could lead to paying back less overall because you’ll have less interest to cover over the loan term. Borrowing a smaller amount could also make it easier to secure car finance if you have a bad credit score.

What deposit should I put down if I have bad credit?

If you’ve found it hard to secure credit in the past, have missed payments, had a CCJ or been in an IVA, then a larger deposit could make it easier to find bad credit car finance. The bigger the deposit, the less you’ll need to borrow, which lowers the amount of risk to the lender. But it’s important you don’t drain your savings account to boost your deposit. Try to keep an emergency fund so that you have money leftover to cover car costs like the MOT, service, and any unexpected repairs.

Deposits and negative equity

When you put down a small deposit, it’s likely that you’ll need to borrow more money and increase the loan to value percentage. Depending on the rate of depreciation, this might mean you end up owing more on your loan than the car is worth, known as negative equity. The risk is lower with a used car that’s more than three years old as new cars tend to lose their value faster than older vehicles.

If you’re looking for a PCP agreement, a large deposit might not be the best option for you, especially if there’s a risk of negative equity. Putting down all your savings upfront might mean you don’t have funds leftover to cover the balloon payment if you reach the end of your agreement and want to buy the car. It could also leave you without a deposit for a new deal if there’s no positive equity left in the car to use.

How to save up for a deposit

Saving for a deposit can be tough but, if you have some disposable income that you could put aside, it’s achievable. It can help to have a clear goal in mind; if you know you’re looking for a used car that’s worth £7,000 for example, then £700 could be your target deposit. Once you’ve got a goal, it’s time to create a budget. Don’t be too restrictive, if you try to cut back on all your treats then you’re less likely to stick to the plan over time. If you don’t need new wheels straightaway, take your time and save gradually in a sustainable way.

How to secure no deposit car finance

If you’ve found the used car of your dreams, you don’t necessarily need to build a deposit or dip into your savings – zero deposit car loans are available. At CarFinance 247, we work with several lenders who can issue 100% loans but it’s worth keeping in mind that not putting down a deposit could increase your monthly repayments or make your loan term longer, so you pay back more overall. We’ll always work to get you the best deal from our panel of lenders, but some no deposit car finance deals are only available to people with good credit ratings.