Picture this: you’re cruising down the scenic coastal roads of Australia with the wind in your hair and the sun kissing your skin while your favourite tunes are singing through the radio.
Sounds perfect, right?
More than just a mode of transportation, a car is a real ticket to freedom, pride, comfort and adventure. However, the journey of hitting the open road always begins with navigating the financial side of car ownership, starting with saving for a car deposit.
In this quick car deposit guide, we’ll explore what a car deposit is, how much you typically need to save and share some reminders for when you’re putting down a deposit for your dream car.
What is a car deposit?
A car deposit is a lump sum of money that you pay upfront when buying or leasing a car. It’s a demonstration of your commitment to buying the car and is often required by dealerships and lenders.
Essentially, it serves as your initial investment in the vehicle, while the remaining cost will be completed through your choice of car financing method.
So, how much do you need to save for a car deposit?
The amount of the car deposit can vary, depending on several factors including:
- car price,
- lender’s policies and
- your credit score
Some lenders require a fixed percentage while others can be more flexible. A good credit score can also help with negotiating the initial deposit or even help you qualify for a no-deposit option.
Typically, car deposits can range from 10% to 20% of the vehicle’s purchase price. According to a Canstar Blue survey, the average spend for cars in Australia is $40,000. This means that the usual range of car deposits is around $4,000 to $8,000, depending on the factors mentioned above.
3 Tips to help you save for your initial car deposit
Saving for your dream car might seem daunting at first, but with some careful planning and discipline, you can reach your goal sooner than you think. Here’s how:
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Set a clear goal.
Start by determining how much you need for your car deposit. This involves considering your dream car and doing your research. With a specific target, it’s far easier to stay motivated.
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Open a dedicated ‘car deposit’ savings account.
Consider opening a separate savings account for your car deposit. This way, you can easily track your progress and avoid being tempted to use the savings for other expenses.
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Stay disciplined.
Because a car is a big investment, remember that patience and discipline are required. Try to stay focused on your goal and think of the exciting road trips and adventures that await you.
Once you’ve saved enough for your initial car deposit, the next thing to do is to be prepared for when you discuss your car loan and deposit with a lender.
Things to remember when putting down a car deposit
Do the necessary checks before paying.
Book in a test drive and make sure that you’re getting the right car. If you’re buying a used car, be sure to run a car history check early on.
Carefully examine the contract before signing.
Read the vehicle loan contract carefully and be wary of verbal agreements. This part may be a little tedious, but it can help you avoid car financing mistakes and save money in the long run.
Don’t be afraid to negotiate a car deposit.
Don’t hesitate to negotiate the terms for your vehicle deposit. In some cases, they may be willing to accept a lower deposit amount depending on your credit score and the car you’re looking at buying.
Saving for a car deposit may not be the most exciting part of car ownership, but all of the benefits that come afterwards are definitely worth all the effort.
With determination and careful planning, you’ll soon save up for your initial car deposit and find yourself behind the wheel of your dream car. Better yet, if you speak to us, we can help you through the process!
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Backed by decades of vehicle industry experience, fleet buying power and a network of car dealers across Australia, we are here to ensure that buying your next vehicle will be as straightforward as possible for you, whether you’re ready with your car deposit or not.
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Reach out to us today for a seamless and simple car-buying experience.
Disclaimer: The article is for informational purposes only and does not constitute financial advice. The content is not intended to be a substitute for professional financial advice, and readers are advised to consult their financial specialist before making any financial decisions. Readers are solely responsible for their own financial decisions and should conduct their own research and due diligence before making any investments or taking any financial action.
Stumping up a deposit for a new vehicle can be a difficult prospect for many new car buyers, yet alone if they are trying to scrape together enough funds for it to be a large deposit.
So does it really matter then if you are unable to put down a large deposit for a new car? Should you hold off on your decision to purchase a car until you are in a position where you have enough funds for a large deposit?
Why put forward a large deposit?
As with any other instance where you might be forking out for a big purchase, the more money you can set aside, the smaller the amount of funds you borrow from a financier.
If you are in a position where you can put forward a large deposit then you will reduce the size of your loan. This can afford you several potential benefits, providing of course that you can keep up with the commitments of the loan. These benefits include:
- A potentially lower interest rate on the loan
- A reduction in overall interest costs across the life of the loan
- Lower monthly repayment obligations across the life of the loan
- The ability to repay the loan in a shorter timeframe
What should I consider before putting forward a large deposit?
Although the incentives in putting forward a large deposit might seem compelling, if you are going to do so, then you need to be particularly attentive to certain circumstances.
First things first, you need to understand just how much you can afford to set aside and commit towards a deposit. Remember, you will have other financial obligations in your life, and your personal circumstances could change at any minute. It is always wise to be prepared for any risk, including the prospect that you lose your job or have sudden emergency expenses arise.
One of the things you will need to take into consideration is whether putting forward a large deposit now could leave you with less cash to meet your repayments. If for any reason you find that you are unable to keep up with your repayment schedule, this could have long-term ramifications for your credit history.
What’s more, pursuing low interest rates shouldn’t necessarily be your end goal. Just because you can’t save up enough funds to attain the lowest rate available, that doesn’t mean you should hold off on purchasing a vehicle, as not only could you miss out on a time-sensitive deal, it could even have other implications on your day-to-day livelihood.
In the second-hand car market, it’s not uncommon to encounter sellers who are looking for some security to close a deal. That is, if you are hoping they will hold onto the vehicle while you stump up the cash, then it’s only fair that a deposit be placed. Not only does this show that your interests are legitimate but it protects the seller in case you pull out of the deal when they have other interested buyers.
When it comes to the new car market, a deposit isn’t strictly essential when applying for finance to secure the car you want. However, by doing so, it can make your life a whole lot easier, as you’ll have a larger choice of financiers to deal with, not to mention, scope to achieve better terms for any finance on the vehicle.
With this in mind, before you make the decision to put down a deposit for a car, consider these vital points.
First things first, it’s all about due diligence
Because there are often caveats dictating the instances in which a car deposit may be refunded, or the ability to back out of a loan, there is nothing more important than being sure this car is the car for you. It’s one thing to think that the car is what you’re after but until you’ve taken it out for a spin, and looked into its detailed history, you’re really just taking a punt – and a risky one at that.
Be sure to arrange a test drive. If it’s a second-hand vehicle, look into the vehicle’s service history and general condition to see if there might be any gremlins hiding under the hood. Most importantly, check the Personal Property Securities Register (PPSR) to ensure that the car has a clean bill of history – that is, it’s neither stolen, written-off, or under finance.
A contract speaks louder than everything else
If there was ever a more important thing when it comes to buying a car, it’s hard to go past a contract. This will not only outline the terms of the sale, and for any finance you have secured, but define each party’s rights in the event of a disagreement.
Verbal discussions and agreements might be fine for low value asset purchases but a car is not one of them. Always draft a contract – even a simple one – to define the terms surrounding the deposit and under what circumstances you can reclaim it. Every reputable dealer will also deal with you through a contract, so if you ever have any resistance on that point, run!
Relieve pressure by negotiating
Although a dealer or private seller may claim to have other prospective buyers waiting in the wings, it’s crucial you do not rush the abovementioned due diligence on account of feeling pressured into the sale. Whether it is the terms of the sale, conditions of the deposit with your financier, or the dollar figure associated with either aspect, always try to bargain your way to a better outcome.
If you feel as though the dealer or seller is trying to close the sale quickly, there may or may not be legitimate reasons. But remember, reversing a bad decision is a far more complex and unlikely task than finding another suitable vehicle to buy.
Put down what you can afford
The trade-off between a deposit or higher up-front purchase price will follow you for years to come. So always make sure that you weigh up your financial position, including ability to meet repayments, job security and the like. Speak to a financial adviser if necessary, as it’s important you get that loan-to-value ratio spot on.
Level 2, 9 Help Street