How Do Car Deposits Work?

What is a car deposit?

A car deposit is the lump sum of cash you pay upfront when buying a car. It shows the seller that you’re serious about the purchase and secures the car until the full payment is complete or financing is finalised. Your deposit often influences the terms and conditions of your deal, affecting everything from monthly repayments to interest rates.

Purpose of a car deposit

Here’s a closer look at why deposits are so important when financing cars:

Securing the vehicle

A deposit ensures that the dealer holds the car for you and doesn’t sell it to another buyer. This is particularly important for popular models from manufacturers like Land Rover, Nissan and Mercedes-Benz, which can have long lead times. Deposits can also be a lifeline when you want to secure a car but need time to arrange financing.

Lower monthly payments

Deposits help offset the total purchase price of the vehicle, which lowers your monthly payments. Generally, the higher the deposit, the lower your monthly finance payments. This is because you’re reducing the principal amount that needs to be financed.

Improved finance terms

A decent deposit can affect the terms of your finance agreement and help unlock a lower interest rate. Lenders associate high deposits with low-risk borrowers, which can prompt them to offer more favourable loan conditions.

How much should you pay?

The amount you decide to put down as a deposit depends on several factors:

Price of the car: Higher-priced vehicles usually require a larger deposit. A common benchmark in the UK is 10-20% of the car’s total cost. For example, if you’re purchasing a car priced at £25,000, expect to pay a deposit of £2,500 to £5,000.

Dealer requirements: Some dealerships have set minimum deposit requirements.

Your budget: How much you can afford to pay upfront will often determine your deposit size. It’s important not to stretch your finances too thin by putting down more than you can comfortably afford.

Different types of deposits

Standard deposits: Many car financing deals start with a standard cash deposit.

Part exchange: If you’re trading in your old car, its value can sometimes be used as your deposit for the new one. This can be a convenient way to boost your deposit without additional cash.

No deposit deals: Some lenders offer ‘no deposit’ terms which allow you to skip an upfront payment entirely.

Find the right deal with My Car Credit

Whether you’re struggling to pull together a decent deposit or you’re ready to make a sizeable down payment on your next car, My Car Credit is here to help. As a car finance broker, we work with a panel of trusted lenders to find deals that suit every type of driver.

To get started, take a look at our handy online car finance calculator and get that dream of a new car underway.