Ways To Get Car Finance Without Worrying About the Deposit

Whether you are buying a secondhand car or a new car, you will be required to make an upfront payment. No lender would lend you money unless you pay down 10% of the market value of your car. It is suggested that you start saving money months before you want to buy your car. Unfortunately, many people find it hard to have stashed away to make upfront payments. If you have a bad credit rating, it will require you to put down even more money. Most car finance providers will expect you to pay down up to 20%. This is quite challenging and complicated.

What if you do not have enough money? If you are looking to have your car financed from a car dealer, it is a must to have a deposit. Whether you use a hire purchase or a personal contract purchase, under both circumstances, you will have to pay down the deposit. In case of a bad credit rating, the deposit amount could be more than 20%. It depends on how bad your credit report is.

A few car dealers might be willing to accept a lower deposit as long as you have good relations with them. You should try to negotiate for a lower down payment. However, bear in mind that the consequences of lower payments are not favourable because they accentuate the size of the debt. The larger the debt, the larger the interest will be. Cars on finance with bad credit and no deposit is not feasible from car dealers. However, there are a few direct lenders who provide auto loans without any deposit.

What are zero-deposit car loans, and how do they work?

Zero-deposit car loans, as the name suggests, are loans that require no deposit at all. This means you will be borrowing the full amount against the value of your car. Qualifying for these loans is not a cinch. You will have to meet certain criteria to ensure that you will not fall behind on payments. The eligibility criteria include:

• Your credit report must be stellar. On no account will a lender approbate your application if your credit rating is not up to snuff. A fair credit rating will not preclude you from being approved for the loan, but it must not be lower than the bare minimum your lender has set.
• Your income sources should be good. If your budget does not have wiggle room to make payments without chipping away at regular expenses, you will be declined. A lender might expect you to submit your bank statement and profit and loss statement if you are self-employed.
• You might even be asked to put down additional collateral. Auto loans are normally secured loans, but your car serves the purpose of security. As you are borrowing money without any deposit, you will have to put down a valuable property such as a house. Remember that there is a huge risk of losing your house in case you fail to discharge the debt.

There are a few direct lenders who accept applications from borrowers without any down payment. As this scenario escalates the risk involved on the part of a lender, they will charge high interest rates. Car loans for bad credit are not inexpensive at all. Interest rates will vary by the lender because it depends on the level of risk involved in lending you money.

Zero-deposit car loans are even more expensive than bad credit car loans. The latter involves a down payment, but the former does not, and therefore the risk accumulates. In order to mitigate the risk involved in lending you money, they charge exorbitant interest rates.

In addition to this, the size of monthly payments will also inflate. Zero-deposit car loans are not recommended at all because they are subject to a high risk of falling into debt. If you fail to make payments on time, not only will you lose your car, but you will also see a drop in your credit score.

Lower credit points will make it even harder to qualify for a loan at affordable interest rates. In fact, most lenders will preclude you from borrowing money for small emergency loans. Remember that no lender would ever lend you money if you cannot prove your repaying capacity.  

Should you use zero deposit car loans?

Caution is enjoined while borrowing money. You should always ensure that you have the repayment potential before applying for the loan. Many financial experts are against the idea of using car finance deals without any deposit. They carry very high interest rates. By the end of the loan term, you will have paid more than double the cost of your car.

Instead, you should consider stashing away for the deposit. A down payment whittles down the size of the loan, which reduces the total cost of the debt. Make sure you keep your credit score in good condition. A good credit rating is a must to ensure that you qualify for lower interest rates. Otherwise, there is no point in arranging a larger deposit.

Here is what you should do when you are on a tight budget:

• Choose a secondhand car. The loan-to-value ratio will drastically reduce.
• Your credit score must be in good condition. Make sure that you have paid off all dues before applying for a car loan.
• Look for a car lender who provides you with the best car deal. Comparison sites might help you make the right choice.

To wrap up

It is not easy to have your car financed without a deposit. Car dealers generally accept applications with a deposit. There are a few lenders who might fund your car without any deposit requirement, but this could be quite expensive. You will need to thoroughly research to choose the best deal that suits your budget.