Car Deposits: Everything You Need to Know About Your Used Car Down Payment

The first thing most people think about once they’ve found the car they want to buy is how they’re going to pay for it. Unless you’re paying in cash upfront and in full for your new ride, financing your car is the only option. And that means making a first payment, and a big one – the deposit.

Think of a car deposit - also called a 'down payment' - as the same as slapping a big “sold” sign on the windscreen of your new car. It’s a way of reserving your vehicle by paying a lump sum upfront to ensure nobody else sneaks in while you sort out your financing. But car deposits, especially for used vehicles, are very handy for helping you to manage your financing, ease the burden and save in the long term.

This article explores how to get a car deposit together and how you can make them work for you. While getting a big sum of money together can be tricky, what you do with it afterwards can make all the difference in how much value you can get out of your car financing journey.

What is a deposit?

 A vehicle deposit, or a vehicle down payment, is an initial amount that you pay towards your car. While those paying cash for a car don’t need them (since they already have all the money they require to buy it), people who are financing their vehicle will need to pay a deposit to secure it.

How much is it?

A deposit is calculated based on a percentage of the vehicle’s total cost. It is paid at the moment of purchase, and the amount is variable. Some dealers will ask for a 10% deposit on the vehicle's value, while others may insist on a 20% or even 25% down payment. Some people may have enough cash available to pay more than the minimum deposit required.

An example of a typical car deposit

So, for example, if you’re buying a used car that costs R200,000 and the dealer asks for a 10% deposit, you’ll need to come up with R20,000 to secure it. A 20% deposit will cost R40,000, and a 25% request, R50,000.

You can also trade in your current vehicle and put some or all of the money you get for it towards your deposit, too. As this money goes towards the initial amount paid towards the car, a 10% deposit paid upfront will leave you with R180,000 still to pay.

Why do deposits matter so much?

The amount of your deposit affects almost every aspect of your car and its financing. It can affect your loan interest rate, your total repayment term, and how much your instalments cost you each month. Your vehicle deposit could even open the door to a bigger, more expensive car.

Financial service providers (FSPs) and banks look kindly on people with large deposits available. They will likely offer more favourable terms on your financing because they know they’ll get a good chunk of your money early on. But ultimately, the larger the deposit, the more you’ll save on interest in the long run.

What to do if you don’t have a deposit

 Unless you have a nice big chunk of cash lying around to go towards your new car, you’ll need to figure out how you’re going to get your hands on a vehicle down payment. While selling your current car or trading it in are popular methods to secure deposit cash, sometimes we find ourselves in a situation where we just don’t have the money or a car to sell or trade-in available. So understanding how to get a car deposit means getting creative.

You don’t even need a deposit sometimes

 Some dealers offer something called “zero-deposit finance” or a “reverse deposit option”. This is where you don’t actually need a deposit to secure a vehicle upfront. Instead, you buy the car, paying regular monthly instalments, but will need to make a large payment at the end of the term.

 This option usually means higher instalments over the full term of your car finance and a pretty hefty balloon payment at the end of it. Many people run into problems getting the higher amounts together later on, so be careful of this option and try to get an initial deposit together instead.

It doesn’t always have to be 10%

While a 10% vehicle deposit is the typical minimum going rate, sometimes you can arrange with an FSP to pay a portion of the deposit now and the balance soon after that or later on. It all depends on your situation and whether the financer is prepared to allow you to pay a smaller initial deposit.

These arrangements can sometimes come with extra fees and impact on interest, so make sure you know what is happening before asking for a special plan.

Use deal assistance instead

 If you’re struggling to figure out how to get a car deposit together, you can always appeal to your dealer directly. Many dealerships offer programs and options that help their customers to finance their cars more easily. Some even provide innovative deal assistance options where they will fund the deposit on your behalf, and you cover the amount with your instalments.

 Using deal assistance as a deposit for your vehicle is a great way to secure your car without having to scrape together a large amount of cash quickly.

How to get a car deposit together

The first option for getting your hands on a deposit is to tap into those savings. When the time comes to empty the piggy bank or flush out that long-term savings account, be brave. It isn’t easy watching that balance you’ve been working on for so many years drop suddenly, but think about what you’re doing it for.

However, many of us simply don’t have enough savings available for an instalment, let alone a vehicle down payment. So, what options do you have if you find yourself needing to get your deposit together? Here are a couple of ideas.

• Sell your current car (or any other assets)

Your car is an asset that can easily be turned into deposit cash by selling it. If you’re lucky, you’ll get a nice sum for your existing ride, which can easily cover your deposit. If your old wheels won't do the trick, you could look to other assets.

Consider selling some of the bigger items you no longer need. Furniture, electronics or old jewellery are easily converted into cash, while any existing investments may hold enough in them to cover your new used car’s down payment.

• Trading-in

 Trading in your current car is often a quicker, more convenient way to use your old wheels to help pay for the new ones than having to find a buyer, sell and secure the cash. Many dealers will let you trade in your car and then put the money they offer you for it towards the deposit on the new one. This post explains how trade-ins work.

• Start saving now for the big day

A smart deposit-building tactic is to begin putting a little money away each month towards your car deposit. When the time comes to secure a car, you have the cash to do it. Try to estimate how much you’ll be able to spend on a new car, say, a year from now. Take 10% of that value and divide it by twelve. Now you know how much you need to save each month.

• Take out a loan

Finally, you can always turn to the bank and ask them to lend you the money you need for your vehicle deposit. While convincing them to give you the cash may be tough, and interest rates can get high, if you really, really need a car, this is an option. Remember, though, you’ll likely be paying double interest – on both the deposit loan and the financed vehicle itself.

How to use your deposit most effectively

Once you’ve managed to succeed in how to get a car deposit, you have a few options on the table to get the most out of it. This is where playing smart can save you quite a bit in the long run or allow you to get into a bigger, better car.

While most people want to drop all the available money they have for their deposit straight into their car, you can always put your deposit to work for you. Here are a couple of the most common options for what to do with your car deposit.

• As a bigger vehicle down payment

If your deposit amount exceeds the minimum amount required by the FSP or dealer, there’s nothing stopping you from paying off 30% or even 50% of your car on the spot. Your FSP will then structure your loan agreement according to how much you still have to pay. You could shorten your loan period or reduce the monthly instalments below what they would have been if you'd only paid a 10% deposit.

• To supplement your monthly instalments

Some people opt to take the balance of their available deposit money after paying the initial 10% or 20% and use it to supplement their instalments. If, for example, you got R40,000 for selling your old car, and the dealer asks for 10% of the R200,000 new car you’re buying, you’ve got an extra 20k to play with. Use this money to take off the instalment pressure and add it in increments to your instalments.

• To get a better car

You also have the option of upgrading to a better car if you find yourself with more deposit cash than you planned for. While you may end up paying a little more over the longer term, using a deposit surplus to lock down a nicer, fancier car also means you’ll likely get more for it when you eventually sell down the road.

• Invest for a little extra cash flow

Of course, you can pull off a financing masterstroke and use your deposit money to make you money. Instead of paying your deposit for a new car now, wait a few months and invest it in a short-term investment, adding any earnings to your car deposit. Be careful of taking too many risks here.

Pros and cons of having a bigger car deposit

Larger car deposits are powerful resources that help people save on interest, shorten loan periods, secure cars before anyone else does and kickstart their vehicle financing. But while bigger deposits are helpful and beneficial to car buyers, there are also a few things to watch out for.

Pros of large car deposits

• Lower monthly instalments or shorter term – A large vehicle down payment can significantly reduce your monthly instalments since you’re covering a major portion of your repayment upfront. You also have the option of knocking off the final few instalments altogether and paying your car off months sooner.

• Easier to sell sooner – By paying off a significant part of the amount you owe on your car upfront, you’re making things easier for yourself if you’re thinking about selling sooner than expected.

•  Helps to offset negative credit ratings – People struggling with bad credit scores may be able to use their bigger deposit amounts to offset the impact of negative ratings on interest rates and other problems.

• Better loan approval prospects – Banks and FSPs love cash, and if you have enough of it to put down as a car deposit, they’ll see you as a more attractive loan prospect, increasing the chances of being approved.

• Less interest – By paying a bigger deposit upfront, you’ll be borrowing less money from the bank or FSP. This means less for them to charge you interest on, potentially saving you thousands over the life of the loan.

Cons of large car deposits

• Lose out on a big lump cash sum – Big deposits could run the risk of taking away from other cash reserves, which act as a “golden egg” or buffer. Without this money available or accessible, you may run into financial trouble and find yourself without cash when you need it most.

•  May not necessarily lower interest rates – While having a big vehicle deposit may increase your chances of getting a loan approved or reduce the total interest amount owed, it won’t do much for lowering those interest rates, which are determined by the prime lending rate and other factors of your situation.

• Could be better to rather invest elsewhere – Sometimes, keeping some of that deposit money for high-yield, short-term investments or buying a non-depreciating asset may be a better idea than sinking it into a car.

Conclusion – Using deal assistance to get your deposit together

Many people find that securing their car deposit is a difficult challenge, especially in tough economic times. Large amounts of cash are hard to come by, and when we do get our hands on them, we often have to use them to pay off debts and other everyday expenses.

However, if you’re looking to buy a quality used car and not miss out on a great deal when you see it, having a vehicle deposit is the best way to lock it down. Dealers are finding new ways to empower their customers – especially those struggling to come up with the large amounts of cash needed to get a deposit together.

Aside from trading in your car (which is still one of the most effective ways to boost your deposit possibilities), deal assistance programs are helping people to get over the car deposit hump.

Chat with us to learn more about how you can use deal assistance to contribute towards your vehicle down payment and why our extensive fleet of quality used cars is the best place to start looking for your next vehicle.