Can I get car finance without a deposit?

Our cars are typically the most costly financial commitment, most people have after paying our rent or making mortgage repayments each month. That’s why car finance is so handy - rather than stump up thousands and thousands of pounds all at once, you can spread the cost over time and enjoy cruising the open road (or, y’know, taxiing the kids to football, swimming, drama club, scouts…) while paying it off gradually.

But many car finance deals still ask you to cough up a certain amount of cash at the beginning, in the form of a deposit. This could be up to 10% of the full amount you’re borrowing, so depending on the car you’re buying, you could be looking at paying a few thousand upfront. Many of us don’t have that kind of cash lying around, so what happens then? Say hello to no deposit car finance.

What is no deposit car finance?

No deposit car finance is basically what it says on the tin - it’s a car finance deal where you don’t have to pay a deposit. 

It can be especially useful if you need to replace a car quickly, and don’t have time to save up a deposit, or if you have other bills to pay that don’t leave much room in your budget for saving. 

Usually, no deposit car finance is only available on used cars, and it depends on the lender as to whether they offer it or not.

How does no deposit car finance work?

Let’s back up a second. When you take out car finance, you are effectively borrowing money to cover the cost of the car, and paying it back with interest - it’s a type of loan. So, if you pay a deposit upfront, the amount you need to borrow will be smaller, so you’ll have a smaller amount to repay with interest.

So, when it comes to no deposit car finance, your monthly payments will be based on the full cost of the car, as opposed to the cost after a deposit amount has been taken off. This means you’re paying interest on a bigger chunk of money than you would be if you’d put down a deposit, and y’know what that means? Higher monthly repayments.

If you can manage paying a bit more each month, then going for car finance without a deposit can be a good way to bring home the car you want, without having to fork out a big wad of cash upfront.

When it comes to practicalities, no deposit car finance works much the same as other car finance deals. You just check what finance you can get with your specific circumstances (we can help with this), find a car that suits you and fits any criteria the lender sets out, confirm that the lender can do a no deposit deal, and you’re good to go.

What are the pros and cons of no deposit car finance?

Driving away in your dream car without having to pay a penny upfront might sound awesome, but make sure you weigh up your options properly before you sign up. Here’s some pros and cons to keep in mind:

Pros of no deposit car finance

You don’t have to pay anything upfront

We’re stating the obvious here, but the main advantage of taking out car finance with no deposit is that, well, you don’t have to pay a deposit.

Lots of lenders offer it

There are plenty of lenders (including ourselves) on the market that offer no deposit car finance deals, so you should be able to compare deals and find the right one for you.

Get your new car quicker

You could drive off the forecourt in your new wheels sooner, because you won’t have to spend time saving up the money for a deposit.

Cons of no deposit car finance

You have to borrow more

If you don’t pay an upfront deposit, that means you’re borrowing a bigger chunk to cover the cost of the car, so you’re looking at a taking on a bigger loan.

You have to pay back more

A bigger loan amount means you’ll pay more interest, so you’ll be paying back more money overall, compared to a deal where you’ve put down a deposit. Your monthly repayments are likely to be higher too, because of this.

Lender restrictions

Some lenders might have extra rules in place for no deposit deals, like what kind of car you can buy, or what they want to see in your credit history.

Is no deposit car finance right for me?

Well, that depends. Taking out car finance without a deposit can be ideal if you need to get a new car quickly and you don’t have time to save up a deposit, but it’s not all sunshine and rainbows - there are some downsides too.

If you can afford to pay a deposit, not only will your monthly repayments be lower, but you’ll pay less interest, so you’ll end up having to pay back less money overall.

On the other hand, don’t overstretch yourself to pull together a deposit if you can’t afford one. If you need a car and a deposit feels out of reach, then a no deposit car finance deal could be your best bet.

What are the alternatives to no deposit car finance?

The most obvious alternative would be to save up for a deposit. If you can afford to put some money aside, and you’re not desperate to replace your car super quickly, then saving up and paying a deposit will likely bring down your monthly repayments. You’ll end up repaying less overall too - win-win!

The amount you’d need to pay as a deposit would be up to 10% of the value of the car, so look into the typical cost of the car you’d like, and that will give you an idea of how much you’d need to save.

Another option would be to look into personal contract purchase (PCP) finance deals. PCP is pretty flexible - it’s available with or without a deposit, and the monthly repayments tend to be lower compared to hire purchase (HP) finance, because with PCP, you’re not paying for the full cost of the car. 

At the end of the agreement, you can choose to pay the optional final payment to make the car legally yours, or skip the payment and hand the car back. Or the other option (we told you it was flexible!) is that you can use any equity you’ve built up as a deposit for your next ride.