While a deposit for a car loan can bring a number of benefits for you, It’s generally a matter of choice. This means you can choose to pay for a deposit on your car loan or pay the entirety of the purchase with the loan. However, some financiers require you to put in a deposit for your car loan in order for it to get approved.

Whether you’d want to pay for a deposit on your car loan or not depends on a number of factors. Depending on your situation, it can serve you well. That being said, to get the most out of it, you’d need to assess your situation carefully and do your own research.

That’s the reason I’m here to assist you with all the information I’ve gathered on the question, “Do you need a deposit for a car loan.” So, without further ado, let’s get right to it.

What Is a Car Loan Deposit?

A car loan deposit is basically a down payment where you pay a certain amount of the entire price of your car upfront. This makes you eligible to receive a number of benefits. 

Paying for a deposit on your car loan is certainly a good idea if you’re in a position to do so, but it’s not mandatory in most cases.

When Would You Need a Deposit for Your Car Loan?

Although you can certainly get approved for your car loan without having to put in a deposit, there’re certain circumstances where you’re required to do so. Let’s talk about some of the situations where your lender might ask you to pay for a deposit on your car loan.

1. Your lender might ask for a deposit if you’ve little to no credit history or have a bad one.
2. Some financiers have particular policies that require you to put in a deposit to get your car loan approved.
3. Having negative equity on your current car loan or having unpaid defaults may prompt your lender to ask for a deposit on your car loan.

Benefits of Putting a Deposit on Your Car Loan

If you’re able to, paying for a portion of the total price of your car is always a good idea. However, you’d still need to figure out if the benefits you receive from it are worth the money you’re putting into it. You can do this by taking a look at the possible benefits that you might receive from paying for a deposit on your car loan.

1. A lower interest rate: A deposit can easily benefit you thousands of dollars by cutting down on the interest rate over the course of the loan. You’re basically paying a certain amount of interest-free money when you’re putting in a deposit. As a result, the sum total you’re paying as interest is reduced, saving you a bunch of money.
2. It makes repayments much more manageable: Basically, by putting in a deposit, you’re lending less money from your financier. This means the principal you’ll need to pay off, along with interest, is lesser. Consequently, your monthly repayments will be of smaller amounts, freeing up money for your other bills.
3. A deposit can increase your possibility of approval: Paying a deposit shows that you’re good at saving money and managing your loans. This decreases the risk for your financier, and they’re able to rely on your ability to repay more. As a result, the possibility of getting your car loan approved increases.
4. A deposit helps you achieve equity: You don’t want your loan to be more than the worth of your car. A deposit helps to make this possible and gives you equity.

How Much Should You Pay for Your Car Loan Deposit

Usually, with deposits on your car loan, the more you pay, the less it’ll cost you over the life of the loan. With a 10% deposit on your car loan, you’ll be able to reduce the interest rate substantially. It will also help you manage your monthly repayments, as the amount will be significantly smaller.

It’s worth noting that cars are depreciating assets. This means your purchased car will decrease in value in the first few years. The more you pay for a deposit on your car loan, the more you reduce the risk of losing money when selling.

Calculate Your Repayments Before Paying for a Deposit of Your Car Loan

While paying for a deposit on your car loan is almost always a smart move, you’d need to make sure you’re prepared for the monthly repayments. 

First, you need to find out how much you can afford to borrow and what the possible repayments might be. You’ll find a number of free repayment calculators online to help you with this.

Once you’ve worked it all out, there’ll be little to no risk in paying for a deposit on your car loan.

F.A.Q.

How much deposit is enough for a car loan?

Unlike home loans, there usually isn’t any specific amount that you need to pay for the deposit of a car loan. However, a 20% deposit on a car is good enough in most cases. This amount is sufficient to reduce the overall repayments and the interest rate significantly.

What does it mean to put a deposit on a car?

Putting a deposit on your car means paying for a portion of the entire purchase of a car. The dealer holds the vehicle on the promise that you’re going to purchase it soon. Once you’ve paid the deposit, you can find other means, such as a car loan, to finance the rest of the money.

Is a deposit on a car refundable?

Generally, a deposit on a car is nonrefundable unless the seller has breached the contract terms.

The Bottom Line

Although you don’t need a deposit to get a car, it’s usually to your benefit to pay for one. In the long run, it can benefit you thousands of dollars and even help you build equity. That being said, it’s important to remember that the money you put into a deposit is usually nonrefundable.

So before finalizing, make sure to assess your financial situation carefully.

Hopefully, by now, you’ve got the answer to your question: “Do I need a deposit for a car loan.” Also, don’t forget to reread the article at the time of your purchase.