If you are in the market for a new car, you may be wondering ‘Do I need a deposit to get a car loan?’ Read on to find out.
If you are in need of some new wheels but are strapped for cash, you may be wondering if you need a deposit to get a car loan. The short answer to that question is no, not necessarily, but let’s break it down to see what your options are.
Getting started with a car loan
A car is a high value item that can cost many thousands of dollars. Not many of us have the money set aside to buy one outright, so a loan is often the only way to go, even for a second-hand model.
But what if you aren’t sure you can scrape together what you need for a deposit on a car? There are still a few steps you can take.
The first thing you need to do is to choose the vehicle you hope to purchase.
Find a good vehicle at a reasonable price, then reach out to some different car loan specialists to find out if you can afford to repay a car loan. The lenders will want to know a few details about you, like your current income and how much money you owe on other debts and expenses, including your credit cards and other personal loans. They may also wish to value the car and establish the loan to value ratio (LVR).
What is a Loan to Value Ratio?
The LVR is the loan amount expressed as a percentage of the value of the vehicle for which you are seeking a loan.
For instance, if the car you wish to purchase costs $20,000 and the lender lends you $10,000, then the LVR is 50%.
The good news is that many lenders will be willing to lend 100% or even more of LVR. Borrowing more than 100% is a good way to pay off rego and insurance and other fees that come with buying a vehicle.
How to get a 100% or higher LVR on a car loan
To get a deposit-free car loan, it helps to have a good credit history. If you have faithfully repaid any other loans or credit cards in your name, odds are your lender will be happy to lend you what you need with no money down, meaning you won’t need a deposit to get a car loan.
What to look out for
Apart from a bad credit history, there are a few other catches that might make it hard to get a no deposit car loan, such as if the car you are after has been souped up. In this case, the car may be worth more than its book value, making it hard for the lender to loan you the full amount.
Some financial institutions won’t offer the option of a no deposit loan at all, so you will need to do your research to find lenders like Finance One, which does offer this type of loan.
Here’s a hypothetical example:
‘Adrian’ has his eye on a ‘96 VS Commodore Acclaim. It is priced at $5,000. He takes the details to his lender and they have the car valued. Their results value the car at up to $5,200.
As the car sits comfortably within its book value, Adrian’s lenders are happy to give him an LVR of 120%. Adrian now has a loan of $6,000, enough to buy his car and have money left to put towards insurance and registration.
Keep in mind, Adrian did not have to accept the full 120%. He may have been happy with borrowing enough to just cover the cost of the car, but he was still free to negotiate.
In short, you don’t need a deposit to get a car loan. Do your research first and spend the time talking to your lender to get the best deal. Of course, this does not mean you can’t, or shouldn’t put down a deposit if you have the money to do so. Deposits will make it easier to get a loan approved and give you less to pay off over time.
Overall, if your credit history is good, you choose a vehicle that sits comfortably within its book value, and you choose a flexible lender like Finance One, there is no reason that you should need a deposit to get a car loan.
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.