Used cars with no-deposit finance

Buy now and pay later with no-deposit car finance, which can help out when you don't have savings to spare

By BuyaCar team Oct 13, 2022

Whether you're purchasing a new or used car, chances are it's available with no-deposit finance, which enables you to order it and take delivery, without having to make any finance payments in advance - just a standard reservation fee.

This can be helpful if you find yourself suddenly needing a car, but without the savings to put down a deposit. You’ll typically have the car for a month before needing to start monthly payments, which gives you some breathing space if your funds are tight initially. It's still important to make sure you can afford the monthly payments after that initial month off, though, as you'll have to make the payments every month until the end of the contract.

Whether you put down a deposit or not, you’ll still end up paying the same amount of money by the end of your finance contract. However, the lower the deposit, the higher your monthly payments will be and the greater the amount of interest will be, because you're borrowing more money than you would be if you paid a deposit. In contrast, any deposit you do pay will reduce the amount that you borrow, cutting your monthly payments and subsequently your interest costs. As a result, it's worth thinking about whether low upfront costs or low overall costs are more important to you - if you can afford a deposit, you'll likely be better off in the long run.

Lenders typically require a strong credit score for you to take out no-deposit finance, because it's considered to be a higher risk for the finance company.

No-deposit car finance: how it works

Whilst you apply for finance and find out whether you're eligible for no-deposit finance options, you'll generally need to reserve the car you're looking at for a fee, which could range from around £100 to over £1,000. Depending on the seller, you'll typically get this refunded or discounted from the balance of the car that you want to finance.

The first finance payment usually happens 30 days after you take delivery of the car, however every finance company has its own set of terms. You'll continue to make payments until the end of the agreed finance term, paying more in the long run as interest will apply to the whole finance balance. No interest will be applied to any deposit you can afford, saving you some extra cash by the end.

No-deposit car finance: types of finance

The two most popular types of car finance offer the option of no-deposit finance, so whether you're after the lowest possible monthly payments or the lowest overall cost to own the car, there's an option that should suit your needs.

PCP finance - which stands for Personal Contract Purchase - is the most flexible option and offers low monthly payments compared with the value of the car. That's because the monthly payments only cover part of the car's value - the amount it's expected to lose over the length of the contract.

So, you pay any deposit - or go for a no-deposit contract - make a series of monthly payments and then you have a choice; you can either hand the car back with nothing more to pay (provided you've kept the car in good condition and stuck to the pre-agreed mileage limit) or buy the vehicle by making the pre-agreed optional final payment set at the start of the contract.

Alternatively, if the car is worth more than the optional final payment, you can effectively trade it in for a new model, using any value over the remaining finance balance to put towards the deposit on your next car, reducing your future monthly payments. If you choose to make the optional final payment, however, the car is yours and you are free to keep it, trade it in or sell it. If you don't have enough cash but still want to own the car, however, you can also refinance the optional final payment.

Hire Purchase - also known as HP - meanwhile, features higher monthly payments, as these cover the entire value of the car, but as a result, you pay less interest overall (because you're paying off the balance faster). You also automatically own the car once you've made the last monthly payment, there's no large optional final payment like you have with PCP. Once you've made the last payment - which is the same as the other instalments - the car is yours.

No-deposit used car finance: requirements

No-deposit finance isn’t for everybody because it does require a high credit score. That’s because lenders take a bigger risk at the beginning of the agreement than with an equivalent contract where the customer paid a deposit. With a no-deposit deal, you borrow the whole value of the car and the interest to be paid back, while the car starts to lose value before you've made any payments.

If a customer falls behind on their payments with no-deposit finance, lenders are more likely to be left out of pocket than with a finance type where a deposit was made. As a result, interest rates are typically slightly higher for no-deposit finance; this is another way that lenders cover the increased risk.

The higher monthly payments also make it tougher to pass affordability tests - assessments that finance companies make to ensure that a borrower has enough income to cover the cost of the car loan.

That's why it usually pays to put down a deposit if you can do so; you're more likely to secure a better interest rate and end up paying less in the long run, while benefitting from lower monthly payments.

No-deposit car finance: which cars can I get?

You’ll need to budget for higher monthly payments with no-deposit finance than the example costs shown on most car sales listings, because these assume a deposit, usually of around 10%. 

Find a specific car that appeals to you on BuyaCar, click on the car and then you can head to the finance calculator or get in touch with the dealer to compare your options.