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Do I need a deposit for a car loan?
Car Financing

Do I need a deposit for a car loan?

David Fahim
May 13, 2020
Contents

Deposits for car loans are not a mandatory element to getting a car loan. However, it can help with the approval process and will ultimately lower the amount on your repayments and overall interests if you can pay part of your car off upfront. Some lenders will insist on a deposit of 10-20%, while others will allow you to take out a loan on the entire value of the car.

How do car loan deposits work?

Car loan requirements are based on a lender's maximum loan-to-value ratio (LVR), which represents the maximum percentage of the car's value available for you to borrow. This amount is part of the lender's decision about the percent of LVR.

Some lenders will lend you 100% of the car's value, while others will offer to fund 140% of the value. In this case, you usually don't have to pay a deposit.

Almost 60% of Australians take a loan when they buy a car, and most look to put down a deposit and in doing so avoid high repayments on the life of their loan.

What are the benefits of a car loan deposit?

Don’t think of a car loan as an object but rather a loan amount, it’s simple maths, the less you have to repay, the less interest you are repaying to the lender over the life of the loan. 

There are, however,  further benefits to putting down an initial deposit on a car loan than just how much you need to repay. All lenders are risk averse so the greater the deposit the customer provides starts to balance the scales for the amount of risk taken on by both parties. 

Consumers are rewarded for placing down an initial car loan deposit with the following benefits:

  • A lower interest rate, saving you money over the life of the loan.
  • Higher chance of approval, especially if you have a bad credit score.
  • Greater purchasing power, your choice of lenders may increase and they may offer you better rates to get your business.

How much should I deposit for a car loan?

The amount you choose to deposit initially on your car loan should be how much you can afford as your number one factor. Although car loan brokers will recommend a 10% initial down payment you need to consider the amount you will be paying on on-road costs such as registration and insurance as well as any hidden costs of the vehicle, eg. UV tinting on windows. 

What if I don’t have a car loan deposit?

Not all lenders require a deposit on a car loan. If you are looking for the best loan for your current circumstances CarClarity can help you get the best deal tailored to you. Contact us now!

David Fahim

David Fahim is CarClarity's COO, joining forces with two founding team members that share the same passion of helping customers get the right car loan.

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