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A car loan deposit is a lump sum contribution made towards the purchase of your vehicle, in conjunction with a loan from your car financier. While you don’t always need a deposit when it comes to car loans, with 100% financing available through a wide range of lenders, it’s worth knowing how they work and their benefits to see if they may be right for you. You can find out all about them right here with Savvy today!
Do I need a deposit for my car loan application?
There are many lenders in Australia who can approve applications for car loans of up to 100% of the purchase price of a vehicle, meaning you wouldn’t need a deposit. However, whether you need to supply one will depend on your situation, as well as the lender you apply with and the amount you wish to borrow.
In some cases, you may be able to borrow more than 100% of your car’s purchase price, which allows you to include costs such as insurance, registration and stamp duty in your loan. In others, though, your lender may not accept an application without a deposit, such as if the loan amount is too high or your borrowing history is complicated.
Lenders will generally prefer applicants who are willing to pay some of their own money towards a car purchase, as this reduces the level of risk for them. If you’re unsure whether you’ll need to provide one as part of your car loan application, check your lender’s terms and conditions or speak with your car finance broker.
Situations where you might be asked for a car loan deposit
There are several cases where you might be required to pay a deposit to get approved for your car loan. These include:
- Your borrowing power is too low: if your lender believes the loan you’ve applied for is unaffordable without a deposit, you may be asked to provide one or look for another car within your budget.
- You’re refinancing with negative equity: negative equity means your outstanding loan balance is greater than the value of your car. If you find yourself in this situation when refinancing, you’ll need to cover the shortfall out of pocket.
- Your borrowing history isn’t the best: borrowers with bad credit, especially with defaults on similar loans in the past, may be required to pay a deposit. This can also apply to those who don’t have a borrowing history.
Loan to Value Ratio (LVR) explained
Loan to Value Ratio, typically known as LVR, is a calculation of the percentage of an asset’s purchase price which is covered by a loan. For instance, a loan which covers the full cost of a new $30,000 car would have an LVR of 100%. However, if you were to supply a deposit of $3,000 (10% of the car’s value), your LVR would be 90%.
The greater the deposit, the lower the LVR and the more likely you are to be approved for your loan. This is because lenders use LVR in part to assess the level of risk they take on when funding your vehicle purchase.
How much should I pay for a deposit?
There’s no one single amount you should pay for your car loan deposit. The key is to only contribute an amount you can afford to pay; you shouldn’t necessarily take out a large portion of your savings that you may need for other essentials. Don’t put yourself under too much financial pressure when it comes to a deposit.
If you’re in a situation where a deposit isn’t a necessity, lenders will be happy for you to contribute any amount. However, deposits in the range of 10% to 20% are common among borrowers. The more you pay upfront, the less interest you’ll pay overall, as the following table demonstrates:
| Deposit | Loan amount | Repayments | Total interest | Total saving |
|---|---|---|---|---|
|
$0 |
$30,000 |
$602 |
$6,069 |
N/A |
|
$1,500 |
$28,500 |
$572 |
$5,765 |
$304 |
|
$3,000 |
$27,000 |
$542 |
$5,462 |
$607 |
|
$6,000 |
$24,000 |
$481 |
$4,855 |
$1,214 |
Source: Cheap Car Loans – Savvy. Calculations based on a car loan repaid monthly over five years with a 7.50% p.a. interest rate.
The pros and cons of car loan deposits
Pros:
- Reduced interest spend: with a smaller car loan, you’ll pay less on interest overall.
- Increased approval chances: the more you’re willing to pay upfront, the more likely it is that you’ll be approved.
- Potentially better rates: your lender may even offer a lower interest rate if they’re more confident in you, though this isn’t always the case.
- Reduced monthly payments: by taking a chunk off your loan, you can also free up more room in your budget with lower repayments.
Cons:
- Eating into your savings: a deposit may not suit you if it means it’ll take a significant portion of your savings away.
- Not an option for everyone: if you don’t have much in the way of savings, you may not be able to comfortably put one forward.
What can I do if I don’t have a deposit?
As mentioned, it may not be the end of the world if you don’t have a deposit for your car loan. Savvy Managing Director Bill Tsouvalas says that while a deposit can be very beneficial, it’s worth comparing your options if you aren’t in a position to pay upfront.
“It’s important not to stress about a deposit if you don’t have one, as there are plenty of lenders willing to offer 100% finance under the right conditions”, he said.
"Even for borrowers who have less than perfect credit scores, there may be specialist lenders out there willing to work with you.
“It’s all about taking the time to compare offers and working through which lenders can offer the most suitable deal tailored to your circumstances.”
Questions about car loan deposits answered
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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Approval for car loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.
The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.
