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pre-approved for a car loan

You’ll often hear the term “deposit” used in reference to car loans. It’s an important piece of the puzzle, and the deposit amount can have a major impact on the value of the loan and the amount you repay. But what is a deposit and why is it important?

In this guide, we’ll take a closer look at car loan deposits, showing you just how much of a difference they can make.

What is a Car Loan Deposit?

A deposit, also known as a down payment, is the amount you pay toward the car when taking out a loan. It displays a level of financial responsibility, reduces the lender’s liability, and provides some other benefits.

Do You Need a Car Loan Deposit?

Deposits aren’t always necessary and it is possible to get a car loan without one. However, lenders may request a deposit if you don’t have a credit history or have a low credit score. Requirements vary by lender.

How Much Deposit do I Need for a Car Loan in Australia?

Most borrowers put down between 10 and 20% of the car’s value. A lender will rarely request more than this. The average price of a new car is around $40,000, equating to a deposit amount of $4,000 to $8,000.

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How Does a Deposit Affect the Financing of the Car?

A down payment can affect your car loan in several ways:

1. It increases the likelihood of approval

A large down payment says two things to a lender. First, it says that you are financially responsible enough to save the money and then use that money for its intended purpose.

Secondly, it reduces the loan-to-value ratio. If the purchase price is $40,000 and you pay $8,000, it means the loan amount will cover 80% of the purchase and not 100%, thus reducing the lender’s liability.

As a result, the approval process should be smoother and there’s more chance of being accepted.

2. It reduces the interest rate

By paying a larger deposit amount, you’re reducing the lender’s risk and making yourself seem like a more viable option. It could lead to an improved interest rate.

3. It makes the repayments more manageable

If you pay 20% on a $40,000 loan, the total loan amount is just $32,000 and not $40,000. A smaller amount means a lower monthly repayment, making the loan more manageable on the whole. You will pay less money over the length of the loan as well, therefore freeing up more cash for other expenses.

4. You have more equity

A car is an asset, and assets can be sold. If you need money at any point, you could clear the loan, sell the car, and profit from the remainder. But if there’s no down payment, it could take months and even years before you own enough of the car to justify selling it.

With a down payment, you are effectively buying yourself more equity in the vehicle from day one, giving yourself more options if you decide to sell it. Of course, cars depreciate in value, especially in the first year, and you’ll need to factor this into the equation if you decide to sell.

5. It leaves you with less money

Although there are some obvious benefits to car loan deposits, there is also one clear downside: you need to find a lot of extra cash. If you can’t afford to buy a car outright, you might struggle to come up with a sizeable deposit. And if finding a deposit means raiding your savings and leaving you without a rainy day fund, it’s probably not the best option.

Speak with one of the lending specialists at Fox Finance Group for more information on down payments, interest rates, and more.

To give you an idea of how much difference a sizeable down payment can make, check out the following examples:


Deposit Amount Purchase Price Monthly Repayment Loan Term Interest Rate Total Interest Paid
$0 $40,000 $811 5 Years 7.99% $8,652
$4,000 $40,000 $730 5 Years 7.99% $7,787
$16,000 $40,000 $487 5 Years 7.99% $5,191
$0 $40,000 $741 6 Years 9.99% $13,340
$4,000 $40,000 $667 6 Years 9.99% $12,006
$16,000 $40,000 $444 6 Years 9.99% $8,004
$0 $40,000 $706 7 Years 11.99% $19,295
$4,000 $40,000 $635 7 Years 11.99% $17,366
$16,000 $40,000 $424 7 Years 11.99% $11,577

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Is it Possible to Have 2 Car Loans?

Yes, but only if you can afford 2 car loans. The lender will assess your affordability and check your credit history to determine if you’re capable of managing both loans. Large down payments can make you a more viable borrower by reducing the overall size of the loans.

What is the Average Car Loan Repayment?

Car loan repayments vary considerably across the country and also differ greatly depending on whether the car is new or used. The average typically falls between $400 and $600 a month, but there are many variables to consider.

What Else Helps to Reduce the Cost of a Car Loan?

Secured car loans are often cheaper than unsecured loans, as they are “secured” against the vehicle and it can be repossessed if you stop paying. Comparing car loans is essential and you should also think about the car you’re buying. Are there cheaper options available? If you buy a cheaper car, you’ll need a smaller loan amount and can clear the balance sooner.

For professional advice and the best car loans, contact one of our advisors.

Ready to Apply for a Car Loan in Australia?

There are some clear benefits to making a substantial down payment, including improved interest rates, lower monthly repayments, and easier approval. Even if you can’t afford the 20% deposit often recommended by loan experts, you should still consider making a down payment.

Need more advice? Contact one of our lending specialists. We work with over 50 lenders and have helped countless customers just like you. We can help you to find the best car loan interest rates while discussing deposits and other essential terms. Get in touch to learn more.

About the Author

Rowdie Lang

Rowdie has been a part of our Team since 2020. He has witnessed firsthand the ongoing evolution of the finance industry as technology continues to change the way customers' access financial services. He has a passion for helping people and relishes the opportunity to work alongside our teams every day as they help our customers financial dreams come true.

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