PCP (Personal Contract Purchase) finance and car loans are the most common types of car finance which are available with no deposit. HP (Hire Purchase) sometimes requires no upfront cost, while leasing (known as ‘PCH’ or Personal Contract Hire) has a non-refundable ‘initial payment’ as standard.

Do you need a new car but can’t afford a large upfront payment? Find out what options there are for no deposit car finance and what you should consider beforehand in this guide.

What is no deposit car finance?

No deposit car finance allows you to get behind the wheel of new and used cars without having to pay anything upfront.

Car dealerships and auto lenders/banks offer zero deposit car finance based on the individual circumstances of the applicant, though it comes with a catch.

For example, you’ll need to have the following in order to be approved:

  • A good to excellent credit score (670-850 using the FICO system often used by these entities)
  • Pass a credit check to ensure you can make the monthly repayments.

Not only is it difficult to obtain no deposit car finance, but there’s also a lot of interest too on the payments which make it a lot more expensive. Ultimately, it’s not a good option if you’re financially savvy.

How do I get car finance with no deposit?

There are three common ways in which you can obtain no deposit car finance.

  • Personal loan
  • HP finance
  • PCP finance

The payment plans are very similar. However, at the end of a personal loan or HP agreement you’ll automatically own the car, whereas with a PCP deal it’s your choice whether or not you want to pay a final ‘balloon payment’ to then own it.

Should I choose no deposit car finance?

No deposit car finance isn’t for everyone. The cost of not putting any money towards the car means you pay more over the course of the contract.

This is why you should always try to have some form of deposit to put down – we recommend at least £500. Lenders will view you as much less of a risk when deciding whether to approve your finance application if you bring something to the table. In this instance, with a £500 deposit you could save £612 on the PCP agreement for the Fiesta. For the HP agreement this could be £576 saved.

If you don’t have a good to excellent credit score then you may want to consider another form of low deposit finance, such as leasing. At Moneyshake you can pay as little as one month’s initial payment (i.e. one lot of the monthly rentals) for a brand-new car. This is equivalent to £195 for the Fiesta.

Remember: A lower initial payment will mean that your monthly lease payments are more expensive, so be sure to check that you can afford to pay them.

Advantages of no deposit car finance

There are many reasons why no deposit finance appeals to car buyers, including the following.

No large upfront cost

Saving up enough cash for a deposit on a car can take time, especially as most agreements require you to have around 10% of the car’s value to put down. For many, the monthly costs of mortgages or rent, bills and the increased cost of living makes this very difficult.

Car finance with no deposit takes care of this issue, allowing people to jump into a vehicle of choice and pay off the vehicle gradually over 2-4 years. Usually the first payment for the car won’t be taken out until after 30 days which can be a financial respite if you have any unexpected payments to make.

It won't affect your credit score

Although no deposit car finance approval is subject to you passing a ‘soft search’ credit check the agreement itself won’t negatively affect your credit score. This differs from a ‘hard search’ which can affect your credit score by leaving a mark for other lenders to see.

As long as you are on time with the monthly payments and don’t miss any, you could in fact see your credit score boosted by the finance. This is because most credit scoring systems recognise that you’re showing responsibility by repaying the debt you owe and will reward this as such.

It can be affordable

PCP finance in particular can be more affordable than you think if you choose the right contract terms and opt for a cheaper model.

Disadvantages of no deposit car finance

Just like most types of car finance there are some things you need to consider before signing a no deposit finance agreement.

High interest rates

The high interest rates attached to no deposit car finance agreements will cost you hundreds of pounds more over the course of the term. So, even if you can afford the monthly payments, you’ll pay a lot less in total if you had some cash saved up to put towards the car.

Personal loans have the highest interest rates because the car itself isn’t used as security against the loan.

What’s more is that APR is ‘representative’, meaning that you may not get the advertised rate. In fact, 51% of applicants for a particular deal get that rate, whereas the other 49% will often pay a higher rate.

Poor credit isn’t considered

Applying for a no deposit car finance deal with a FICO credit score of less than 669 will mean that you’re labelled as ‘subprime’. This means that you’re a much bigger risk to lend money to and it’s highly unlikely that you’ll be approved.

This isn’t to say that you should give up there though. Based on the credit system this would still mean you have a ‘fair’ score, which is considered by leasing providers. You won’t need a huge deposit either.

Higher monthly payments

Because no deposit car finance doesn’t require you to put down any cash to secure against the loan, the monthly payments are much higher than other forms of finance.

It’s important to calculate your earnings each month and budget for the car’s cost. Be sure to take into consideration your other monthly expenses and whether this leaves you with enough cash to pay for the vehicle. Otherwise you’ll face charges for missed/late payments and potentially the car could be repossessed.

Is no deposit leasing available?

No deposit leasing is available but for people with a good to excellent credit score.

How it works is that you don’t have to pay a large sum upfront. Instead, the first lease payment for the car is taken as the initial rental after the first 30 days.

Because leasing involves paying the depreciation of a vehicle for the time and mileage that you use it for, you should beware that monthly rentals are much higher for no deposit deals.

Want to find your perfect new car for a small upfront cost? Then why not consider leasing? Compare prices now on our latest lease deals and pay just one month’s initial rental.

Looking to find out more about vehicle costs? Check out our car finance guides to learn more.