We have talked many times about the exclusion of a deposit and also inclusion of one for a particular type of finance plan, and how there are pros and cons to having a deposit in place (you can reduce the amount of money required per month for the regularly-scheduled payments, but it also means having to find a larger value of cash up-front). Assuming that you are happy to proceed with a finance plan that requires a deposit, though, there is a chance that you will be offered what is known as a deposit contribution, and that is what we will be discussing in today’s article.
What Is A Deposit Contribution?
A deposit contribution is offered by the finance provider, often as an incentive for you to go ahead with a specific finance plan, and their purpose is to essentially provide you with a discount on your deposit, which in turn can ultimately create a deposit on the deal as a whole. It is a value of money agreed upon by all, which is fair in line with the terms and conditions of the main plan, which is provided by the finance company themselves. It is a one-off amount, and it is given at the very beginning of a deal just as you are about to make your initial deposit name, hence the name.
How Does A Deposit Contribution Work?
It is important to note that this does not override the deposit that you are making for a car, but instead it links up with what you are paying. The upshot is that you will be making a larger deposit payment on the whole. Let’s say that the deposit you are making for a car is £1,000, and the vehicle costs £10,000 in total. But the deposit contribution might be £500, £750, or even £1,000 again. The upshot is that instead of paying 10% of the car’s value in advance, with the deposit contribution, the figure increases to around 15%, 17.5% or 20% when all is said and done. The impact is that, having covered a greater percentage of what the vehicle is worth, the resultant monthly payments will theoretically be lower, hence this saving you money.
Benefits Of A Deposit Contribution
We have already mentioned about how a deposit contribution is designed to save you money, which is as clear-cut and obvious a positive reason to accept a deposit contribution as any, but there are other upsides to think about. One of those is that the deposit contribution is not part of any additional loan, meaning that it does not have to be paid back. It’s easy for a first-time driver to be told that their finance provider is willing to essentially give them an extra load of cash to cover a car purchase, and for the inexperienced motorist to then automatically assume that they need to make up that figure somewhere down the line. But that is not the case: it is a one-off amount, almost a donation only without the charitable tie-in, that allows you to pay off a greater proportion of what the car is worth before you get behind the wheel. Car finance brokers will have similar perks as they might offer you money back from their lenders which shows they car for your business. There is also a feeling of being valued by the finance company if this option is presented to you, because not everybody is going to be given this opportunity. And if all this means that you are in a stronger position to complete your payments for the long run, it builds some good will with the finance company in the event of a future finance plan several years down the road, at which point you could also remind them that you have previously been given a deposit contribution before, so why not provide you with that option again for your next car purchase?
Downsides Of A Deposit Contribution
Although you do not have to pay off the deposit contribution that you receive, you will still have to ensure with absolute certainty that taking this opportunity does not result in increased interest payments, which could ultimately mean that you are not saving very much money at all over the course of the agreement. In addition, a deposit contribution is not offered to all deals, and requesting one where it is denied by the company could make them wonder if you are going to be able to make all of your monthly payments, thus causing them to be a little more hesitant in green-lighting your preferred plan (especially if you are buying a car for the very first time). This is partly why some in the driving community do not really trust the concept of deposit contributions, and would instead prefer to take their chances by sticking to the agreed-upon deposit and letting the rest of the deal play out. And also ensure that it is the finance company and not a fly-by-night dealer who is giving you this pathway, because if it is, and interest rates are set to increase if you decide to go ahead with it, then only one person is going to benefit from such a course of action, and it would not be you.
One thing to bear in mind is that a deposit contribution is by no means a mandatory requirement, but instead an extra option that might be thrown in as part of the package being offered to you. At the end of the day, the finance company would offer this to try and get you over the line towards agreeing to a car purchase (it may be a game show-style lifeline of sorts). And there is no problem with accepting this opportunity since it theoretically will help you to save money, but you really do have to check that there are no interest rate add-ons from making this choice. You need to do your homework before saying “yes”, but if you do so and all is fine and reasonable, then a deposit contribution might help you to benefit from a significant discount when buying your car.
Want to know more about deposit contributions? visit our blog section or call us on 01925 599079. to speak to our finance team.
As part of our services, we deliver the car to your premises of choice within the UK. Lately we have delivered cars in most major towns including the Southern cities & midlands: (London, Birmingham, Leicester), Northern cities (Manchester, Liverpool, Sheffield, Leeds, Newcastle), and Scottish cities (Edinburgh, Glasgow).