What is a Deposit Contribution

When planning to buy a car, the amount you can put down upfront can make a big difference to the overall cost of buying a car on finance. A bigger deposit is usually an advantage as it should keep the monthly repayments lower. Not everyone can necessarily afford a larger deposit though, and this can sometimes be where a deposit contribution can come in.

So what exactly is a deposit contribution? A deposit contribution is where the manufacturer or dealer provides an amount of money to the deposit when you’re buying a car on finance, usually with PCP or HP finance deals. They act as an incentive when drivers are looking to buy a new or used car on finance.

While this may sound like free money, you’re usually then tied into getting your car finance agreement with the manufacturer or car dealer, depending on which has offered it. They’ll usually offer this option on the understanding that they’ll make it back over the course of the finance agreement and the fees you’ll pay in interest.

How does a deposit contribution work?

A deposit contribution for used cars is something exclusive to car finance deals. It’s usually a top-up of your own contribution, rather than making the whole thing. Once you’ve agreed to a deal with a deposit contribution you are usually required to take the car finance deal with manufacturer or dealer who you took the contribution from.

It differs from a discount as it’s still money that’s paid towards the overall value of the car. Essentially, if you have £1,500 to offer for a deposit, and you are offered a deposit contribution of £1,500 then you’ll have a total deposit of £3,000 towards the cost of the car.

This will then lower the amount you need to repay in total for the car. Most deposit contribution deals are offered on the understanding that they’ll make the money back on interest paid.

It’s always worth understanding the guaranteed future value (GFV) of the car before you agree to any form of car finance, and it’s particularly important when taking a deposit contribution.

What are the advantages of a deposit contribution?

The main advantage of a deposit contribution comes if you were already planning on buying your car on finance anyway. If you were intending to buy a car on finance then it’s essentially free money towards your car.

It’s a good opportunity to potentially pay less overall for your financed car than you would have paid with only the deposit you can offer.

If you were not planning to buy on finance, you can still take the minimum amount on finance to get the deposit contribution deal.

What are the disadvantages of a deposit contribution? 

While all of that may sound ideal, there are a couple of potential disadvantages to consider before accepting a deposit contribution.

You are generally restricted to the car finance deal offered by the specific manufacturer or car dealer who has offered you the deposit contribution. This means it’s particularly important to check how much you’ll be repaying and see whether it would be cheaper to take a different car finance deal from elsewhere, even if it doesn’t have a deposit contribution.

As the deal can sound so good up front, it always pays to double-check and completely understand the GFV of your car as well as any potential interest costs.