Car finance deposit: do I get it back at the end of the contract?

Deposits for car finance can be huge, but they can slash your monthly payments and interest charges. Here is everything you need to know

James Wilson
Aug 2, 2019

A car finance deposit is the amount of money you pay upfront for your car when signing up to a personal contract purchase (PCP) or hire purchase (HP) finance deal. And in response to whether you get it back, the answer is no - not directly at least.

The long answer is a bit more complicated, as there is an argument that under certain circumstances you can get your deposit back - or at least some of it - if you ‘trade in’ a car that has equity in it at the end of a PCP contract.

If you’re still getting your head around car finance, click to read the BuyaCar guide to PCP finance, find out everything you need to know about hire purchase and what equity is. And if you’re struggling to work out which type of finance works best for you check out how to buy a car on finance.

What is a car finance deposit?

A car finance deposit is an initial lump sum paid at the start of a finance deal. The most common car finance formats are PCP and HP - both of which involve paying a deposit, though this can be reduced to a very small amount or even nothing in many cases.

Both finance types are structured around a deposit followed by a series of monthly payments, which spread the cost of a car over a number of years - typically two to four for PCP and sometimes longer for HP.

 

The larger deposit you put down, the lower your monthly payments will be, as the remaining amount of money you need to pay is less. The amount of interest you pay goes down as you increase the size of the deposit, too - unless you’re looking at an interest-free credit deal, in which case you pay no interest, regardless of how much you pay upfront.

Confusion arises from the fact the motor industry uses the word ‘deposit’ - which can refer to refundable and non-refundable payments. Often a deposit is refundable provided you give something back in good condition - a rented flat or even a shopping trolley are examples.

With cars though, that is not the case - it is best to think of a finance deposit as just another payment, as you won’t ever receive a big bag of money labelled ‘your deposit’ back from the finance company.

Equity: when car on PCP is worth more than the remaining debt

We are sorry to say that unless you are lucky and choose a car that is worth far more at the end of the contract than the finance company expected - which is known as having equity - you are unlikely to get all your deposit back.

There is an argument that you will be getting back a proportion - or, potentially, even all - of your deposit if the car you return does have equity in it. Many manufacturers are very cautious when estimating what their cars will be worth at the end of the contract, so that if there is an unexpected market change and used cars are suddenly worth much less, they’re not left out of pocket.

If the car is worth more than expected, though, you can effectively get money back that could potentially match - or even exceed - the deposit you paid. This is not cash that is paid to you, however, and is never guaranteed. And you can only take advantage in certain circumstances. Keep reading to find out more.

How to get money back at end of PCP contract

With PCP finance you have three choices at the end of the contract. Firstly, you can return the car and walk away. Do this and you can’t take advantage of any equity the car may have. Secondly, you can make the optional final payment to buy the car. Do this and you now own it.

If you want to free up any extra value over the optional final payment you would have to then sell it. Depending what you sell it for, you could effectively cash in some or all of the equity, though bear in mind that cars can also be worth less than the optional final payment too. If that’s the case you’d lose money if you were to make that final payment and sell it.

The main way drivers can get money back, however, is through ‘trading in’ a car on PCP that has equity in it. That means that the place you’re purchasing a new car from will effectively pay off the finance on your current car and put the extra value towards the one they’re selling you.

To establish whether there’s likely to be any equity in your car - be aware that negative equity is the opposite - ask the finance company for the settlement figure, i.e. the remaining balance needed to pay off the finance. Then gauge how much a dealer, finance company or car buying service would pay for it; if they’d pay more than the settlement figure, you can claw back extra value, effectively getting back part or all of the deposit.

The key to getting as much of your deposit back as possible this way is to make sure the car is in the best possible condition and within the pre-agreed mileage limit, as you can expect to be charged for any excess mileage or damage to the car.
 

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