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To buy a car using a finance deal, no lender will lend you 100% of the value of your car. You will generally have to pay some money upfront, called a down payment, which is at least 10%. This is the minimum down payment size, so interest rates will not be attractive. When it comes to saving money, it is advisable that you arrange a larger deposit. The higher the deposit, the better finance deal you will get.

Your car purchase is not an overnight decision. You may have been stashing away money for a couple of months, so try to aim at a larger saving. Even if you are looking to finance a used car, you should try to pay down a larger down payment, but now the question is why you should do it. Here are the main reasons why it makes sense to pay a larger deposit when applying for car finance:

  • It enables you to get attractive deals

The interest rates for your car loan depend on multiple factors, one of which is the loan size. When you borrow a more significant sum from a private lender or a car dealer, you will be perceived as a risky borrower.

The repayment length of car loans is not very long, so the odds are that you may not have the option to have an extended repayment term even if your car loan is big. Your lender would like to cover as much of the amount as possible from the reach instalment in case you default after a couple of payments.

By arranging a larger deposit, your loan size will be trimmed down. Since you can easily prove your repaying capacity when the loan size is small, your lender will most likely offer you more affordable interest rates.

Interest rates that lenders charge vary by borrower. Not to mention, your credit profile and income will play a paramount role in getting lower interest rates as well, but when you increase a deposit, the reduced loan-to-value whittles down the risk on the part of your lender.

  • You will get rid of the loan sooner

As you know, you will get a smaller loan-to-value when you have a larger deposit; you can get rid of debt payments faster. Even though you have been paying down the debt smoothly or you know that you will manage all payments without a hitch, the odds are your financial situation is turned upside down. Even a cheaper loan can become the most expensive one.

It is all but impossible to anticipate payments without trouble accurately. You may lose your job, or you may come across an emergency. The sooner you get your debts cleared, the better it is, and it is possible when you borrow a smaller loan.  

A few lenders might offer you the choice between repayment terms so you do not face any difficulty paying down the debt. Make sure you do not choose a repayment term that is too short because it will increase the size of your debt payment. Chances are you will struggle to keep up with payments. Do not forget to make allowance for emergencies as well. You should be able to make payments despite unforeseen expenses. Though you can take out instant cash loans in the event of an emergency, it can be pretty difficult to manage both loans together.

However, at the same time, you should not choose a payment method that is too long. This will decrease the size of your instalment, but you will end up paying a lot of money in total. Choosing a plan that best suits your financial condition is always advisable. It should be neither too long nor too short.

  • It benefits you when you have a bad credit score

If your credit score is poor, you can qualify for a car loan, but higher interest rates will be charged. You will hardly get an attractive deal if you get it financed from your lender or car dealer. This is because you will be considered a borrower with greater risk. Your bad credit rating is the result of non-payments or defaults in the past. You are highly likely to commit a default or miss payments at this time, too, so it increases the risk of a lender. In order to lower their risk, they will impose higher interest rates.

To deal with this situation, you should try to arrange a bigger down payment. A larger deposit will reduce a loan-to-value, and so will the risk on the part of your lender. Make sure you put down at least 20% of the value of your car to avail yourself of some benefits. The interest rates you will be charged may not be as low as those offered to people with stellar credit reports, but you will still be at an advantage.

While taking out guaranteed car finance for bad credit in the UK, you should do proper research because each lender charges different interest rates. Pay heed to APR. With thorough research, you can choose a lender that lends you money at a lower interest rate.

Is paying a larger deposit suitable for everyone?

Making a larger upfront payment can be very beneficial for you to get a car loan at an affordable interest rate, but this option may not be suitable for everyone. It will take a longer time to arrange a larger deposit. You will have to assess your financial situation carefully so you do not end up struggling with other expenses.

If you think you cannot set aside a larger down payment, there is nothing to worry about. However, keep your credit score in good condition. Do not forget that even a larger deposit will not help you get lower interest rates if your credit score is not up to snuff.

The final comment

Arranging a larger deposit can certainly help you avail yourself of attractive finance deals. However, it might not be easy for everyone as it depends on your financial condition and goals.  

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