Imagine a scenario. You have done research about your dream car, you have discussed all features with the dealer, and finally, you have made a buying decision. Only one obstacle remains to deal with – a down payment.
In an ideal situation, you will pay for the car and drive away, but many of you require some sort of financial assistance to buy it. Technically, you are supposed to pay down 10% of the value of the car as a down payment. But how would you feel if you were asked if you do not need to pay down even a penny as a down payment?
Yes, you are not mistaken. It is possible to finance the 100% market value of the car.
What is no deposit car finance?
No deposit car finance is an agreement that does not require you to pay any money upfront at the time of buying a car. You may think this is a marketing stratagem to lure you into getting a deal to extortionate money from you, but this deal does exist.
It depends on your personal circumstances whether this is good to opt for or not. You can finance a car with no deposit using two methods. You can take out a personal loan. You will be required to pay down monthly instalments over a period of time. Unless you settle the whole of the debt, the lender will have the upper hand on the title of the car.
In the event of default, you will lose your car to your lender. As personal loans are unsecured, the interest rates will likely be higher. Further, interest rates are decided based on the value of the loan. The size of the loan is equivalent to the 100% value of the car, so that the interest rate will be much higher.
Another way to finance your car with no deposit is a personal contract purchase. It is a contract between you and a dealer that allows you to pay monthly rent for the use of the car for a limited period. Direct lenders do not offer personal contract purchase agreements.
At the end of the contract, you can either return the car, get the title in your name by making a larger balloon payment or start a new PCP agreement. Throughout the term of the PCP contract, you cannot become an owner of the car. You must make the full and final settlement at the end of the contract to get the title transferred to your name.
What are the upsides and downsides of no deposit car finance?
One of the greatest benefits of using no-deposit car finance is that you do not need to pay down any money upfront. You can finance the 100% value of the car and use your savings for any other important purposes.
If you use a PCP, monthly payments will be lower than a personal loan. No deposit car finance is subject to drawbacks as well. The loan-to-value will increase, which means the size of the monthly payment will go up. The risk of falling into debt is very high when you take out a personal loan. You will end up paying much more than the total cost of the car.
In the case of a PCP deal, if you decide to make a balloon payment at the end of the term, this will be an extra cost to you. It is important to carefully analyse your options before opting for no-deposit car finance.
What do you need to wary of?
No deposit car finance can be very tempting as you do not need to pay down money upfront at the time of buying a car, but this is when you get trapped in an expensive deal, a deal that you cannot afford at all.
Read the small print. It is likely that your car dealer does not disclose all details before you sign the agreement. It is not surprising that you get ugly surprises after signing the agreement. Try to negotiate the price of the car to get a better deal.
These deals are subject to other drawbacks as well. For instance, you will have to bear in mind the mileage restrictions. Crossing the mileage restrictions means you will end up paying more money. Be careful to take into account an unexpected change in your financial situation.
For instance, if you lose your job, you may fall behind in payments. This may trap you in debt. It is important that you have a backup plan to come through during difficult times.
How can you qualify for no deposit car finance
You must have a decent credit report because you are not paying down any deposit. Having red flags in your credit history will make it complicated for you to get the nod. In addition to a good credit score, you will have to prove that you have got a very strong repaying capacity.
Do proper research before choosing a dealer or lender. Beware of blacklisted no deposit car finance in Ireland. It is important that you do not get trapped by a lender that does not have authentic deals.
Can you apply for no deposit car finance with bad credit?
Some lenders may offer you no deposit car finance deals despite a bad credit rating, but you will get very high interest rates. Ideally, there are few chances that a lender will sign off on your application when your credit history is not stellar.
The bottom line
Although no deposit car finance deals do exist, it is always suggested that you pay down a deposit. This will lower the loan-to-value ratio. As a result, the size of your monthly payments will reduce. If you have a bad credit rating, you should offset its impact by arranging a bigger deposit size. Try to make it to 20%.
Before you opt for dealership financing, you should carefully examine the pros and cons. Make sure the deal you opt for suits your budget and serves your purpose. If possible, use a personal loan to finance your car. These loans are more affordable than dealership financing, especially if your credit score is not so good.
There is no restriction on mileage use. The title of the car will remain with you from the moment you sign the agreement. Just keep up with payments so you do not lose them.
