What is a deposit contribution?

A deposit contribution is a term sometimes used when you buy a car using a finance agreement. It’s a bit confusing really, as it doesn’t mean you're paying an extra deposit as the name suggests. What it really means is that the dealer is giving you a discount off the overall price of your car.

It might sound a bit backwards, but all a deposit contribution means is that the dealer or manufacturer is increasing your deposit. This means you’ve paid more of the car off overall, and you should have less to pay back - so in theory it’s win win.

How does a deposit contribution work?

A deposit contribution, sometimes called a ‘finance deposit contribution’, works by the dealer - or whoever you’re buying your car from - making a deposit towards the cost of your car. This deposit works like a discount and should make the car finance agreement cheaper for you overall. 

They’re not doing this out of the kindness of their own heart (although there are many kind hearted car dealers out there), it’s usually because they have vehicles that are proving difficult to sell. They’ll often look to offer healthy deposit contributions on this stock to encourage interest.

It can sometimes be quite difficult to work out if you’re getting good value or not with one of these deals, so you’ll always need to look at the overall costs when calculating how much you will have to pay out.

Here’s an example to simplify it a little:

You buy a car worth £20,000 with a car finance agreement, and you agree to pay £2,000 as a (non refundable) deposit. The dealer puts forward £2,000 as a deposit contribution, so you now have £16,000 to pay back through the finance agreement (minus any fees or interest).

You now have to pay back £2,000 less and this should bring down your overall repayments, which you will be making each month to the car finance company, throughout the length of your contract.

What is the benefit of having a deposit contribution?

As a deposit contribution is essentially a discount off the price of the car, it’s an enticing offer. Some of the benefits could include the following:

• You may be able to afford a more expensive car thanks to the contribution
• You’re paying off more of the car but without having to actually stump up any more money
• Your monthly payments should be lowered, leaving you with more money for other things

Is there any downside to having a deposit contribution?

It all sounds pretty good so far doesn’t it, but as with anything to do with car finance, or life actually, there are a few things to be aware of too:

• Using a deposit contribution might not be the best way to buy a new car - or the cheapest. You’ll need to compare the costs against other ways of buying a new car first.
• If the interest rate you are paying is high, even with a deposit contribution you may pay the same as if you had chosen a different type of car finance product. Always ask the dealer to give you the full details on the deposit it is paying, the overall amount you will pay back, how much interest will be applied, and any extra charges you could end up paying.
• If you are part-exchanging an old car, you’ll need to pay particular attention to the fine print. For example, if there is a minimum deposit needed for a new car, of say £4,000, and a deposit contribution offer of £2,000, a dealer may offer you the remainder (£2,000) in return for you part-exchanging your car. But your car might be worth more than this. That’s why it’s always worth getting a private valuation of your car in advance, so you know how much it’s worth and you’re not getting short changed.

Can I get my deposit back?

Even though it’s a deposit, with the majority of car finance agreements you won’t get the money back. Especially if the contract has been signed as this means you are entering a legally-binding agreement.

However, it’s not all black and white and there are a few scenarios where you may be able to get your money back, as we explain below.

When will I be entitled to having my deposit refunded?

There are some rare situations where you may be able to get your car deposit back, even after you’ve signed on the dotted line. Always check the small print with a very fine tooth comb before signing anything so you know what you’re getting into but if in the following scenarios you may be able to get your money back:

• If the dealer (or whoever sold you the car) has breached their contract
• Your application for car finance is not accepted
• The car you’ve bought is no longer available to you