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Can I Get a Car Finance Deal Without a Deposit?

The average new car in the UK costs more than £33,000. Few of us have that kind of cash lying around, so most of us use car finance products, which spread the costs of a vehicle over several years.

But while you won’t need tens of thousands of pounds to get behind the wheel, you will usually need to pay some upfront costs. A deposit of around 10% of a vehicle’s price is typical, for both hire purchase and personal contract purchase finance arrangements. But what if you don’t have the money? There are some options for getting a car finance deal without a deposit.

Below we examine how financing a car without a deposit works and why you might - or might not - want to consider one of these car finance deals.

In this guide:

How does car finance work?

Car finance refers to any arrangement that allows you to purchase a vehicle without having to pay the full amount upfront. 91% of new cars in the UK are now bought through some kind of finance deal.

The most popular kinds of car finance deals are hire purchases (HP) and personal contract purchases (PCP). Both these generally involve an upfront payment, or deposit, of around 10% of a vehicle’s purchase price.

With HP, you put down a deposit and then repay the loan amount, plus interest and fees, over the agreed term. At the end of the term, if you’ve stayed on top of your repayments, you own the vehicle outright.

With PCP, you make monthly payments for the use of the car, but you don’t own the vehicle outright at the end of the term. Instead you have a choice - to return the car, make a balloon payment and purchase it, or transfer to a new PCP arrangement for the vehicle. PCPs also usually require a deposit of around 10%.

But if you don’t have the £3,000 required as a deposit to buy a new vehicle on finance, what do you do? Luckily there are a few options for financing a car purchase without putting down any money upfront.

What is no deposit car finance?

It may seem unbelievable, but you can drive a new car off quite often without handing over any money upfront. The only exception would be for perhaps a reservation fee of a couple hundred pounds. In fact, you typically won’t have to make a payment for 30 days, until your first repayment is due.

A no deposit car finance deal can get you on the road quickly and allow you to spread the cost of a new vehicle equally across the loan term. However, you’ll invariably end up paying higher bills each month. These loans will also typically come with higher interest rates and thus higher costs overall.

The most common way to get car financing without a deposit is through a PCP arrangement. HP agreements without deposits are very rare.

You can also obtain a personal loan and use the money to pay for a new car. Personal loans typically don’t require upfront payments. However, because you’re not using the vehicle itself as security on the loan, you’ll face higher interest rates.

How do you qualify for no deposit car finance deals?

Not everyone will be able to obtain a car finance deal without a deposit. Typically, you’ll need a good credit score and a history of regular payments on loans, including car finance arrangements, to be eligible. Lending you money without a deposit upfront and lending you a larger sum overall is high risk for the lender, and they want to be assured of your reliability. To reflect this risk, you’ll also face higher interest rates if you’re borrowing without a deposit.

Additionally, lenders will put all applicants for car finance through affordability tests to ensure they can comfortably afford the monthly repayments. If you don’t put down a deposit, you’ll have to borrow more for the vehicle and thus will face higher monthly payments. Therefore, you’ll have to demonstrate a higher income to meet the affordability criteria for car finance deals without a deposit.

Pros of no deposit car finance

  • no need to pay thousands of pounds upfront for a new vehicle
  • can get behind the wheel of a car with no substantial payments for 30 days
  • allow you to spread the cost of a vehicle equally across several years

Cons of no deposit car finance

  • higher monthly payments
  • higher interest rates and thus higher overall cost
  • usually only available with PCP arrangements. This means you won’t own the car at the end of the deal and will face a hefty balloon payment if you wish to buy it
  • more likely to be in negative equity on the loan, which means you may have to pay out of your own pocket in order to sell the car or trade it in
  • only available to those with good credit ratings
  • higher monthly payments mean you’ll need to demonstrate more income to pass affordability tests