A car loan without a deposit works pretty much like a personal loan, just secured against the vehicle. You borrow however much you need to buy the car outright, then if you default on your repayments, your lender has the right to repossess it to cover their losses.
If you’re eager to get hold of your new car right away, you might not want to wait until you’ve saved up enough for a deposit. Many lenders give out car loans without requiring any upfront payment, but there’s a few things you should know first.
Compare No Deposit Car Loans
| Fixed | New | 99 years | N/A | More details | |||||||||
| FEATURED | OurMoneyMarket – Car Loan ($5k-$100k | Fixed, Secured) (New) (5 Years)
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OurMoneyMarket – Car Loan ($5k-$100k | Fixed, Secured) (New) (5 Years)
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| Fixed | New, Used | 99 years | N/A | More details | |||||||||
Harmoney – Secured Car Loan (5 Years) | |||||||||||||
| Fixed | New, Used | 99 years | N/A | More details | |||||||||
Stratton Finance – Car Loan (5 Years) | |||||||||||||
| Fixed | New, Used | 99 years | N/A | More details | |||||||||
Westpac – Hybrid and Electric Car Loan (5 Years) | |||||||||||||
| Fixed | New | 99 years | N/A | More details | |||||||||
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MoneyPlace – New Car Loan (Excellent Credit) (5 Years)Disclosure
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| Fixed | New | 99 years | N/A | More details | |||||||||
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Firstmac – Green Car Loans (5 Years)Disclosure
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| Fixed | New | 99 years | N/A | More details | |||||||||
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Firstmac – New/Demo - Car Loan (5 Years)Disclosure
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| Fixed | New, Used | 99 years | N/A | More details | |||||||||
Bank Australia – Fixed Rate Car Loan (with Low Emission Vehicle Discount) (5 Years) | |||||||||||||
| Fixed | New, Used | 99 years | N/A | More details | |||||||||
Commonwealth Bank – Secured Car Loan (5 Years) | |||||||||||||
| Fixed | New, Used | 99 years | N/A | More details | |||||||||
Plenti – Car Loan: Refinance (5 Years) | |||||||||||||
| Fixed | New | 99 years | N/A | More details | |||||||||
RACV – RACV Finance New Car Loan (5 Years) | |||||||||||||
| Fixed | New, Used | 99 years | N/A | More details | |||||||||
Bank of Queensland – Fixed Rate Flexible Car Loan (5 Years) | |||||||||||||
What’s the point of a deposit?
The bigger the amount you borrow, the larger your interest bill. The more you are able to put up in your deposit, the less you will need to borrow, so a hefty deposit is a great way to reduce the overall cost of your loan. Lenders are also more likely to approve car loans with a substantial deposit, because the Loan to Value Ratio (LVR) is reduced.
LVR measures the value of the loan relative to the asset used as collateral. If you have a home loan, you’re probably very familiar with how LVR can affect your borrowing capacity.
Less risk of negative equity
High LVR loans are riskier for a lender, because they run the risk of negative equity should the asset depreciate. Due to the amortisation schedule of loans, at the start you are paying off a higher proportion of interest than the principal - if you come into it with $10,000, you have more principal paid off and skin in the game.
Imagine you buy a car for $50,000, with a $2,500 deposit and $47,500 loan. Your LVR would be 95% (47500/50000*100). Now imagine that after six months, you have paid off $7,500 of the loan, but are now struggling with repayments.
At the same time, the used car market has shifted, and your car is now only worth $35,000. This means that if you default on your repayments to the point where the lender repossesses the car, they will make a loss, since reselling the car at auction will not be enough to recover the full outstanding amount.
Lenders might therefore be a bit more apprehensive about giving out car loans without a deposit, since this will nearly always mean an LVR of at least 100%. There is an insurance policy called ‘car gap insurance’ that covers you in the event of negative equity, but this is an additional cost.
Why wouldn’t I be able to get a no deposit loan?
No deposit car loans are common, but are riskier for lenders. There are several circumstances where a lender might require a deposit before they can give out a loan.
Maximum LVR requirements
Most lenders will have an LVR threshold that loans cannot exceed. If the loan amount is too much relative to the vehicle, your lender might require a deposit to reduce the loan amount, and bring down the LVR.
You have poor credit history
As with any loan, your lender will do due diligence on your background, particularly your credit history. High LVR loans mean defaulting can put lenders in a tough spot, so they are likely to be even more rigorous when assessing loans with no deposit. If you have a history of unpaid bills and late repayments on other debts, it might suggest to your lender that giving you a loan without a deposit would be an unacceptable risk.
You have no credit history
It would be nice if lenders gave the benefit of the doubt to borrowers who haven’t had the chance to demonstrate their trustworthiness. Unfortunately, that isn’t the world we live in, and if you have no way to show your lender that you can be relied upon to make all your repayments, they will probably ask for a deposit.
Young people, students and retirees who have minimal credit history and regular income who are in the market for a car might find it far easier to be approved for a car loan if they can build up a deposit first.
You’re already in negative equity on your current car
Negative equity basically means that you owe more on your car than it is worth. It isn’t a great spot for your lender, who is likely to make a loss should you default, but it’s not good news for you either. If you are in positive equity, you can sell your existing car, pay off the loan and use the remainder to go towards your new ride.
Negative equity positions mean that if you decide to sell your car, you won’t be able to pay off the loan entirely, and will be left with residual debt. When you’re in the market for a loan for your next car, lenders will also take note of your negative equity position. They might require a deposit to make up for this shortfall.
Will I need to pay anything else?
You might not need a deposit to get your loan, but there are still usually several fees that you’ll need to pay. Look out for the following, which may be charged as a one off payment or added to the outstanding amount you owe.
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Establishment fees that cover the administration costs of setting up your loan.
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Account keeping fees that could be an ongoing charge throughout the loan term.
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Exit fees that apply if you pay off your loan early, perhaps by selling the car.
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Late fees if you don’t manage to make your repayments on time.
What to look out for
If you’ve decided you don’t want to wait until you have a deposit saved, there are many lenders that give out low or no deposit car loans. You’ll still need to check the following though:
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Eligibility. Some lenders may require a deposit on certain types of vehicle, or those that exceed a certain price point.
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Loan insurance. Since no deposit loans are riskier for lenders, some may require you to pay an extra amount to cover loan insurance that protects them. This could be a substantial amount, so it’s worth checking to see if this will be the case with your preferred lender.
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Interest rates. Like with any loan, the interest rate will probably be the biggest cost consideration. Lenders might charge a higher rate for riskier loans with low or no deposit, so it’s worth using our comparison tables to try to find the lowest rates going. It might even be a good idea to get a couple of different quotes to compare.
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