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Do I Need a Deposit for a Car Loan?

Wondering whether you need to pay a deposit towards your car loan? Find out more about deposits on car finance and their benefits with Savvy!
Published on February 5th, 2024
  Written by 
Thomas Perrotta
Thomas Perrotta is the managing editor of Savvy. Throughout his time at the company, Thomas has specialised in personal finance, namely car, personal and small loans, although he has also written on topics ranging from mortgages to business loans to banking and more. Thomas graduated from the University of Adelaide with a Bachelor of Media, majoring in journalism, and has previously had his work published in The Advertiser.
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   Reviewed by 
Bill Tsouvalas

Reviewer

Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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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.”

Bill Tsouvalas, Managing Director - Savvy

Questions about car loan deposits answered

Should I just keep the deposit and pay off the loan with a lump sum?

Some loans will penalise borrowers who attempt to pay off their loan early, which can come in the form of a hefty break fee. However, this isn't the case for all lenders, and some may charge less than others, so it's important to check the terms and conditions of your loan before you decide to pay your deposit if you want the flexibility to pay it off early down the track.

Can my trade-in car be used as a deposit?

Yes – if you're trading in your car at a dealership in the process of buying another one, its value will be taken off the purchase price of your new vehicle. This essentially serves as a deposit, reducing your loan amount as a result.

Can I get car loan pre-approval?

Yes – when you apply with Savvy, you can ask your dedicated consultant for more information on car loan pre-approval. This can help you in negotiations for your next car and increase seller confidence.

What is a comparison rate?

A comparison rate is an interest rate with the key fees you’ll pay on the loan (namely establishment and ongoing fees) rolled into one percentage. This gives you a more exact picture of how much the loan will cost over time.

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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.

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