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No Deposit Car Loans: What You Need to Know
June 3, 2020●
8 minute read●
Looking for no deposit car loans?
Generally, the most asked question by new car buyers when looking to purchase a vehicle is whether they can get a no deposit car loan.
Yes, you can most definitely get a no deposit car loan. These days you can easily find lenders who don’t require you to lay down a deposit when applying for a car loan. However, just like any other type of loan, it’s important to always compare your options to find one that will best suit all your needs and financial position.
No deposit car loans: how do they work?
A no deposit car loan is a secured financing option offered by some lenders. The most appealing factor about these loans is that the lender won’t require you to provide any sort of down payment when applying.
This type of loan isn’t available everywhere, however, when it is, the availability is dependent on the lender’s maximum loan-to-value ratio (LVR). This is otherwise known as however much the maximum percentage of the car’s value that the lender is lending you. However, before lending you the money to finance your car, lenders will calculate the LVR using a simple equation. You can estimate what the desired loan amount by simply dividing the loan amount by what the value of the car is.
LVR = loan amount/value of the car
From there, if that amount is within the lender’s LVR requirements, then you could be approved for car financing. The LVR guidelines differ with every lender. Some lenders will be willing to offer flexible LVRs anywhere between 150% or 180% of your car’s value.
What factors will affect my chances of getting a no deposit car loan?
Unfortunately, no deposit car loans aren’t available to everyone. That’s because lenders will need to be ensured that by offering a no deposit loan, they won’t be facing a high level of risk. Eligibility criteria will vary by lender, but here are some factors that will hinder your chances of getting approved:
You have no credit history
If you have no history whatsoever and nothing that can illustrate your history of borrowing money, then lenders can’t fully assess your creditworthiness. The purpose of one’s credit history is to help lenders and credit providers determine how reliable you are as a borrower. Having a good credit score indicates good future performance and will therefore increase your chances of approval.
You have a bad credit report
Just like having no credit history, having a bad credit history will only demonstrate how much of a high risk you would be to lend to, and as a result significantly decreasing your chances of getting approved for a loan. Although some lenders are willing to lend to borrowers with bad credit, it’s good to review and improve your credit score to make sure you’re also getting the best offer.
Having bad equity on your car
If you recently borrowed cash to buy your current vehicle, and the vehicle has now depreciated to the point where it’s less than the outstanding balance owed on the loan, then you’re in negative equity. Because you’re in negative equity, trying to take out another loan could be more difficult as the lender will most likely require some form of deposit.
The car’s sale price is higher than its book value
Sometimes, the sale price or market value of the car you plan on buying could be higher than its book value. That usually occurs if the car has had any modifications and is maintaining really good condition. If this is the case for you, your lender may require you to provide a deposit as security in case the loan amount is within the LVR guidelines.
What will I be charged?
The fees and costs that are charged on a no deposit car loan will vary from lender to lender. Therefore, It’s best to watch out for the listed fees below when applying for a no deposit car loan:
- Interest rate: A percentage of the principal amount added on top of your loan.
- Establishment fee: This fee is charged on almost every other loan as it covers the cost of establishing or setting up your loan. This fee is added to the loan principal that will have to be paid off along with the funds owed.
- Monthly fee: You might need to pay a monthly maintenance fee on your no deposit car loan.
- Early exit fee: Much like any other loan, some lenders will charge you a small cost for paying off your loan early or making repayments that are bigger than what you usually pay. Lenders may sometimes levy the fee as it covers for lost interest.
- Repayment fees: Much like early exit fees, some lenders will charge you if you make additional repayments above your schedule.
- Late payment fees: If you’re making any late repayments or you constantly miss your payments, you should expect a fee to be charged by your lender.
Comparing no deposit car loans
When comparing no deposit car loans, here are a few factors you should consider to determine their advantages and disadvantages:
Your loan amount will increase considering you will not be making a deposit. Therefore, it’s best to make sure you will always have the ability to pay off your debt.
This factor is important when choosing any type of loan. It’s important as the rate that’s applied will have a significant effect on the overall cost of your loan. It’s best to shop around for a competitive rate and find a low-interest rate that would sit well with your budget. Lenders will offer you the choice between fixed and variable rates, so make sure you choose the one that will be right for you.
It’s best to always look over the terms and conditions of any type of loan you plan on taking out. All fees charged will be listed in your terms and conditions, and getting a rough estimate of those numbers can help you calculate your overall loan cost.
Your loan term
When taking out a loan, your lender will give you an option on how long you’d be willing to repay that loan. Car loan terms usually range anywhere between a year and seven years. Regardless of the loan term you choose, it’s important to know that the loan term will affect the cost of the loan. For instance, taking out a loan over a longer loan term means you could be paying less in monthly repayments but more in interest in the long run. It’s best to calculate your budget and get an estimate of how much you’d be able to afford with every repayment.
Much like your loan term, you’d want to get a rough estimate of what your repayment schedule would look like. Take into consideration how often you’ll be able to make a repayment and what would be a good amount for you to afford. Will your lender charge you for making any extra repayments on top of your approved schedule? Make sure to ask your lender about that so you can avoid any additional charges.
With the benefit of taking out a no deposit loan, some lenders might take out additional features such as insurance. Loan insurance helps cover your repayments if you’re unable to make them. However, make sure you’re aware that paying your loan insurance premium doesn’t contribute to your loan balance whatsoever.
What to look out for with no deposit car loans
Here are a few things should look out for and avoid when taking out a no deposit car loan:
Borrowing more than you can afford
The benefit of having a no deposit car loan means you will have to borrow more funds than usual. Therefore, you must be aware of how much you’re borrowing and how well it sits with your other finances. Take into consideration how much the interest will also cost you over the term of your loan. Not being able to make your repayments will affect your credit score and your chances of future financing.
Early exit fees
As mentioned before, not all lenders will allow their borrowers to pay off their loan earlier than the approved schedule. Make sure you’re aware of early exit fees and whether or not your lender will charge you.
Lenders will not lend a no deposit car loan for all types of cars. For instance, if you’re purchasing a car that’s older than 10 years, you will most likely not be eligible for a secured car loan and a no deposit car loan. If this is a case, your next best option would be taking out an unsecured personal loan.
Jacaranda car loans
If you’ve found the car of your dreams but can’t afford to pay for it upfront, Jacaranda can lend a hand. We offer car loans ranging from $5,000 to $35,000 with a repayment period of 2 to 5 years. The best part? we don’t require a deposit or down payment from you when you apply!
Our cheap car loans are 100% online, so you can apply from the comfort of your own home. The loan process can be broken down into just 4 simple steps. These are:
- Apply online
- Get Assessed
- Get an outcome
- Get your cash
How simple is that! Scroll up to the top of this page to the ball rolling on your application.
What do I need to do before applying
We want to make car loans as accessible as possible for all Aussies. However, Before applying for a car loan with jacaranda Finance, you should first check if you meet our eligibility requirements. To be eligible you must:
- 18 years or older;
- Have had an income stable income into a personal bank for the last 3 months;
- Be an Australian Citizen or Permanent Resident;
- Have internet banking set up;
- Have an active mobile number and email address.
Want to better understand car insurance? Jacaranda explains!