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Why It’s Better To Pay A Larger Deposit When Taking Out Car Finance


When you apply for finance for your new car, you will normally be asked to pay a deposit. You might wonder, “How much should I save up?” and, “Is it better to put down a bigger deposit on a car?” Find out in this article.

The lender typically does not provide 100 per cent of the loan value, so you will normally have to pay something in advance, often about 10 per cent of the total value.

But you may be able to pay a larger deposit if you want to. So why should you consider doing this?

Here’s a guide to the main reasons.

Pay Lower Interest Rates

This is the main benefit of paying a large deposit when you apply for car finance. When you pay a larger deposit, you end up taking out a smaller loan. Because you are borrowing less money, the overall risk for the lender is lower.

As a result, they are more likely to offer you a lower interest rate.

This means that the total amount you pay back may end up being considerably lower, so you end up paying less for your car and your payments are more manageable.

When you pay for a car outright in cash, you don’t pay any interest, so this is the cheapest option.

But if you cannot afford a whole car but can pay a large deposit, you can reduce the amount you end up spending.

Pay Back Your Loan Faster

When you pay a larger deposit, the overall value of your loan will be smaller. That means you will normally be able to pay it back sooner because there is less to pay back overall.

So if you don’t want to be paying back your loan for a long time, you could pay a larger deposit and then pay back the total amount sooner. Or you could spread it out but make smaller payments each month that are more manageable.

A Good Option if You Have a Bad Credit Record

You may have a bad credit record or a CCJ. In this case, paying a larger deposit could help you to get finance in the first place.

Many car finance providers are willing to provide finance to people with bad credit records. But they won’t loan to anyone, and you may need to take certain steps to increase your chances of getting accepted.

This can include getting registered on the electoral roll or being able to provide proof of your income in the form of payslips.

Paying a larger deposit is another option. It shows that you have some money to pay already, and it also reduces the size of the loan and therefore the risk the lender is taking.

Consider Paying a Larger Deposit

As you can see, there are several reasons why you may want to consider increasing the size of your deposit when you apply for car finance even with bad credit.

But every situation is different. You may find that you would rather pay the smallest deposit possible or even find a lender who does not request any deposit.

So look carefully at your circumstances, work out how much you can afford to pay back each month, and then start looking at your options.

Frequently Asked Questions

How much should your car finance deposit be?

Even with a high credit score, a car finance company is not going to loan you 100% of the value of the car. You should aim to have upwards of a 10% deposit.

Why does the amount of the deposit matter?

Less risk for the finance company – for a finance company, broadly speaking,  a loan with a large deposit is a lower risk than a small deposit. 

Cheaper for you – with a loan, there will be interest to pay. The smaller you can keep the value of the loan, the less it will cost you over the loan term.

Higher chance of arranging a loan – if you have a bad credit record (or CCJ), the finance provider will request a higher deposit percentage. They do this to reduce their risk.

Marketing Director at Skyemotion Ltd
As marketing director, Paul is largely responsible for Carvine’s online presence and underwriting along FCA compliance.

At Carvine, we pride ourselves as a team of impartial vehicle finance experts that will direct you through the easy application process. As a result, our dedicated team put you in control of one of life’s biggest buying decisions. Consequently, we are all you need to finance your vehicle.

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Paul Thompson

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