No deposit finance on new cars: A complete guide

What is zero-deposit finance?

A zero-deposit finance deal is exactly what it says on the tin – it means you’ll pay nothing upfront for your new car.

You may see this advertised as a ‘deposit contribution’. This is a sum of money that the dealer will give you towards the cost of the deposit on a new car.

Let’s say the dealer is offering a £5000 deposit contribution towards a finance deal with a £5,000 deposit. You can use this contribution to pay for the entire deposit for the car, or chip in some money for the deposit yourself, and use what’s left of the dealer’s contribution to reduce the amount you’ll pay each month.

It’s worth bearing in mind that the monthly costs can be higher on a zero-deposit deal due to the higher interest rates usually associated with such offers.

What are the requirements to secure a zero-deposit finance deal?

Typically, you’ll need a good credit rating for a zero-deposit finance agreement. This is because entering into a finance agreement with no up-front contribution is higher risk for the lender.

Some providers may also ask for a guarantor. This is someone who agrees to take responsibility for your loan if you are unable to keep up the repayments.

It’s not uncommon for lenders to ask for proof of income. This will usually be in the form of a few payslips which prove you earn enough to afford the monthly repayments.

Can I get a zero-deposit finance deal with bad credit?

While it is possible to get a no-deposit agreement with a bad credit rating, it will be very tricky and your options will be limited.

There are some providers who specialise in getting people with poor credit into finance deals. You may need a guarantor or proof of income.

It’s important to carefully consider if you can afford the monthly payments before entering into a finance contract. You may lose your car if you can’t keep up the repayments and it will reflect badly on your credit score. Buying in cash is always an option and one that may be better suited to your individual situation.

What’s the difference between Hire Purchase and Personal Contract Purchase?

The vast majority of zero-deposit finance deals will be Personal Contract Purchase (PCP). On a PCP deal, you pay an initial deposit (unless it’s a zero-deposit deal) followed by a series of monthly payments.

At the end of the agreement, you’ll usually have three options, the most popular being to give the car back and start a new agreement with a new car. You can also pay a final lump sum, known as a balloon payment, to own the car outright, or give the car back and walk away with nothing left to pay.

In a hire purchase (HP) agreement, you still pay a series of monthly installments, but at the end of the agreement you own the car outright. You’re free to keep it or sell it on for a new model.

To find out more about HP and PCP, read our dedicated guide below.

Can I end a zero-deposit finance deal early?

Not paying a deposit doesn’t affect your statutory rights when it comes to ending your finance agreement early.

Once you have paid off more than half your agreement, you can ‘voluntarily surrender’ your vehicle. This means you can tell the finance company that you no longer want the car and they can arrange for them to collect it from you. You won’t have to make any further monthyl payments.

You can also end your agreement by paying off the outstanding balance.

Can I keep the car once the finance is paid off?

Because most zero-deposit deals are on Personal Contract Purchase, if you want to keep the car you’ll have to pay the final balloon payment.

You may opt to hand the car back and get a new one, starting with a new agreement.

If you plan on keeping the car at the end, you may be better off with a Hire Purchase deal. At the end of these finance agreements, you will legally own the car outright.

Buy your next car through carwow

If you want a zero-deposit finance deal you can find one on carwow. Just configure your next car and our network of trusted dealers will come back to you with their best offers, so you know you’re paying a fair price.