Do You Need a Deposit for a Car Loan?
Find out about the potential benefits of a car loan deposit and if you need one with loans.com.au.
A deposit on a car loan is a down payment on a loan, where you agree to pay a portion of the purchase price upfront. A car loan deposit is not always a requirement when taking out a car loan. But it can be a good way to lower your car loan repayments, as well as reduce the interest paid overall.
Since putting down a deposit is optional, a lot of car buyers are on the fence about whether it’s a good idea or not. Although there are certainly benefits to a car loan deposit, it all depends on the buyer’s financial situation.
When can you put down a car deposit?
A car loan deposit is a good idea when you can comfortably afford it. Larger deposits offer the most benefit since you’re borrowing less. This could lead to more savings down the line.
In some cases, not giving a down payment makes more sense. For example, if you don’t have time to save up for a deposit, foregoing it altogether could be more beneficial to get you in a new car sooner.
Lenders don’t usually ask for a deposit for car loan applications. You can borrow the full price of the vehicle without paying for the lender’s insurance, unlike when you apply for a home loan. Although there are plenty of advantages to putting down a deposit, the benefits may not be worth it depending on your situation.
What are the benefits of a car loan deposit?
There are a few ways paying some money upfront for a car can save you money over the life of the loan. Here are a few advantages of putting down a car loan deposit:
- Lower interest paid: Interest paid on, say, $20,000, can be significantly less than interest paid on $30,000. Even a few thousand dollars in a deposit could result in hundreds saved in interest over the life of the loan.
- A car loan deposit may increase your chances of approval: By paying a deposit, you’re demonstrating to the lender you’re capable of good savings habits, potentially making them more likely to approve your car loan application.
- It can make your repayments more manageable: By increasing your deposit, you’re borrowing less money, which means there’s less ‘principal’ to pay off. Less interest being charged means your minimum repayments will be smaller, potentially freeing up money for other expenses or allowing you to pay off the loan faster by paying above the minimum.
The main drawback of a car loan deposit is the time it takes for you to save up. Instead of using those funds for household items, groceries, bills, and other essentials, they’re being tied up in one purchase.
How much should your car loan deposit be?
A 10% deposit is generally the standard when it comes to car loans, and it can significantly reduce your interest paid and repayments. The larger the deposit, the less you’ll pay overall, which is particularly important for a car as it’s a depreciating asset.
If you can’t afford a 10% deposit, any amount can make a difference in your overall car loan costs. To see what your car loan repayments will look like with varying deposit amounts, use our online car loan calculator. This tool can help you estimate your car loan repayments and understand total costs.
When figuring out your car loan repayments, note that some loan features can affect the cost of your loan. A balloon payment could impact your potential repayments and how much you’d need to pay for your car each month.
Should I put down a car loan deposit?
It all depends on where you’re at financially and how urgently you need a new car. For those with enough savings and who can comfortably put down a deposit, it may be worth it. The potential savings and the opportunity to own your car sooner are certainly great benefits.
On the other hand, if you’re in immediate need of a car and don’t have the time or resources to save, waiting until you have enough for a deposit may not be worth it. When thinking about car loan deposits, think about your financial situation and see if it makes sense for you.
If you’re ready to step into the car market, you need to first work out what you can afford to borrow. Using our car loan borrowing power calculator, you can get an idea of how much you can borrow on a car loan.
Find your ideal car loan at loans.com.au
Ready to start car buying? Before you run to the showrooms and car buying sites, you need to get your car finance taken care of. At loans.com.au, we offer a range of car loan options with low rates, great terms, and useful features to help you save money and drive off sooner. Apply online today to get a quote or reach out to us by calling 1300 644 967.
Find out in under 2 minutes if you qualify for one of our low rate car loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
