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Reason a Larger Deposit is Beneficial when Applying for Car Financing
Car Finance – Deposit Large Money to Finance a Car
Before purchasing a brand new car, there are several cars, models, make to choose from. When you finally decide which car to buy, you’ll be applying for car finance. When applying to finance a new car, it is quite common to be asked first to make a deposit.
Lenders aren’t likely willing to cover the full amount of the vehicle you’re interested in. As a result, you will be asked to make a payment in advance before they will approve your loan application, in most cases. The initial payment or deposit will be 10% of the total value of the vehicle.
However, this doesn’t mean that you will only be allowed to make the deposit asked, if you have the means to do so, you may choose to pay a large deposit compared to what the lenders are asking for. You’d probably be asking why this would be a good idea.
PCP Car Finance – PCP, HP, or Larger Deposit
You might consider doing PCP car finance. A Personal Contract Purchase (PCP) is a loan to help you get a car. But unlike a normal personal loan, you won’t be paying the total value of the car, unless you pay the final balloon payment. You might also have heard about Hire Purchase (HP).
An HP is a type of finance that will allow you to buy a car outright without having to pay the whole amount up front and no large final payment, unlike PCP. Both HP and PCP car finance has their pros and cons so before striking a deal, consider all of it.
We are here to provide money guidance to those who can make a larger deposit — if you can afford it.
Larger Deposit – Lower Interest Rates for Monthly Loans
A great benefit of making a larger deposit than what’s asked is that your car financing application will likely get granted with a lower interest rate. When you choose to pay a larger sum for your deposit, you will be taking out a much smaller loan. Considering how you will need to borrow a much lesser amount, there will be a decrease in the risk that the lenders will have to cover for.
As a result, you get a much more affordable interest rate.
With this, the total amount you need to pay monthly for repaying the loan will become significantly lower too, making the repayments more affordable. Since you will then be paying less for the car, it will make it so much easier for you to handle your repayments along with the rest of your other expenses.
If you are looking for the cheapest option to buy a car, however, it would be buying it in cash. This is because there will be no interest involved so you get to save considerably.
However, if you don’t have the means to pay for a car purchase outright, you can instead go for the closest options and that is to pay a much larger deposit. With this, you’ll be reducing your total spending amount as a result.
Large Deposit – Deal with your Loans Sooner
Choosing to make a larger deposit will cause the overall loan value to decrease as well. This results in you being able to pay the loan back sooner since there will be a much lesser amount for you to repay, after all.
If you’re not keen on the idea of having to pay for your car financing for a long time, going for a much larger deposit is always a good idea. With this, expect to pay off the loan a lot sooner and won’t affect your credit score. Another option you can go for is make the repayments more manageable by spreading them out over a longer period. Whichever way, paying for a larger deposit is only going to work on your favour.
Bad Credit – Large Money Deposit Higher Approval Car Loan
You may have a CCJ or bad credit to your name. If this is the case then you will find that it would give you a much higher chance of getting approved for a car financing if you will make a larger deposit.
It would be so much easier for most car financing providers to offer you the car financing you need despite your credit being bad if you will consider paying for a substantial deposit. However, you have to remember that lenders do tend to have specific standards and will not just approve any loan application from anybody, this is why it helps to research about what their specific qualifications are first to improve your chances.
However, if you want to show the lender that you are stable enough to afford a car, then paying them a large sum for the deposit as a way of insurance to the lenders. It will help reduce the overall loan size which reduces the overall risk that lenders will have to face if they will decide to grant you financing. As a result, they are more likely to pout a stamp of approval on your application.
What’s Next Car Finance – Larger Deposit to Purchase a Car
As you will realise now, there are a ton of wonderful reasons that it is worth it to make a larger deposit if you have the means to do so when taking out car financing. As long as you can afford to spend enough time to save up enough to come up with a substantial amount, then a larger deposit is certainly going to work to your advantage.
However, you need to remember that every situation is going to be different. Sometimes, you may find yourself in a situation where you can only afford to pay the smallest amount for the deposit, if you’re lucky, you may even locate a lender that can offer you car financing without any deposit.
Before Buying a New Car – Long-Term Credit, Payments, & Deals
Also, before signing any contract with any finance company, check for monthly payments, research for deals, look for a credible dealer, use a calculator to double-check the numbers, check for car insurance, and see what works for you. Final thoughts, take the time to look into your current circumstances find out exactly how much it is you can really afford to pay back and sign up for car financing that you know will work best for you. You can continuously return back and forth with any contract and car financing deals before making the final decision. Weigh all the pros and cons and see what is best for you.