If you’re in the market for your next car, it’s important to know that there are finance options available that don’t require you to pay a deposit. Savvy has helped thousands of Australians finance their next car purchase with loans of up to 100% of their new or used vehicle’s value. Before you apply, though, it’s essential to consider your options and think about the potential cost of your loan.
How much will my no-deposit car loan cost?
Before you dive into your car loan application, it’s worth taking the time to work out the difference in cost between deposit and non-deposit options. The following table shows how much loans of different sizes may end up costing you for a $30,000 car:
| Loan amount | Deposit | Loan term | Interest rate | Repayments | Total cost |
|---|---|---|---|---|---|
| $30,000 | $0 | Five years | 6.50% p.a. | $587 | $5,220 |
| $28,500 | $1,500 (5%) | Five years | 6.50% p.a. | $558 | $4,959 |
| $27,000 | $3,000 (10%) | Five years | 6.50% p.a. | $529 | $4,698 |
| $24,000 | $6,000 (20%) | Five years | 6.50% p.a. | $470 | $4,176 |
Calculations are based on a loan with monthly repayments. These are for illustrative purposes only and do not reflect the rate and terms you may receive on your car loan.
As you can see, a 10% deposit of $3,000 towards a $30,000 car purchase would save you over $500 in interest based on the above terms.
Should I add a residual payment instead of a deposit?
A residual or balloon payment is similar to a deposit, but is required to be paid at the end of your car loan term. It means you don’t have to pay anything up front, but there’ll be a lump sum due down the track.
Residual payments decrease your monthly repayments but increase the interest you’ll pay overall. The following table demonstrates this for the same $30,000 car:
| Loan amount | Residual | Loan term | Interest rate | Repayments | Total cost |
|---|---|---|---|---|---|
| $30,000 | $0 | Five years | 6.50% p.a. | $587 | $5,220 |
| $30,000 | $3,000 (10%) | Five years | 6.50% p.a. | $545 | $5,672 |
| $30,000 | $6,000 (20%) | Five years | 6.50% p.a. | $503 | $6,125 |
| $30,000 | $9,000 (30%) | Five years | 6.50% p.a. | $460 | $6,578 |
Calculations are based on a loan with monthly repayments. These are for illustrative purposes only and do not reflect the rate and terms you may receive on your car loan.
When might I be required to pay a deposit on my car loan?
Although many can be approved for car loans without deposits, there are certain circumstances where lenders will require you to pay something up front. These situations include:
- Your credit score isn’t the best (or you have no credit history): having bad or no credit will impact your application. Lenders will see this as a greater risk to take on, so a deposit may be required.
- The car you want is out of your borrowing range: lenders will consider your income, expenses and a range of other factors to determine your borrowing power. If the car you want sits outside that range, a deposit will be required.
- Your car’s purchase price is more than your lender’s valuation: there may be situations where the price you’ve agreed on with your seller is more than what your lender is willing to pay. In these cases, you’ll have to make up the difference yourself.
- You’re refinancing with negative equity: this is a common occurrence on car loans. If you’ve been paying off your car loan for a few years and are now looking to refinance, the value of the vehicle may have fallen below your outstanding loan balance. This is known as negative equity.
Top tips for maximising your car loan approval chances with no deposit
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Choose a less expensive car
The less you borrow, the lower the risk being taken on by your lender. The lower the risk, the higher the chances of approval.
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Maintain a strong credit score
Lenders want to see that you can handle the responsibility of a loan. Showing a track record of managing your finances comfortably will go a long way.
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Cut out unnecessary expenses
If you’re finding your budget being tightened, take stock of all your monthly outgoings. There might be fat that you can trim in the form of unused subscriptions.
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Apply with a co-borrower or guarantor
Submitting a joint application with your partner or getting a parent or grandparent to sign on as a guarantor adds an extra layer of security to the loan.
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