Even without a deposit, it’s still possible to buy a new car. Here are your options

Hire purchase:

Hire purchase is an arrangement where you borrow the money from a lending company and pay it back in monthly installments over an agreed period of time. On top of the amount you borrow you also pay interest - this is effectively the lender's profit for lending you the money.

Some lenders will loan the full amount of a new car with little or no deposit but, of course, your monthly payments will be higher than if you had put down a deposit. A way of keeping the monthly payments low is to extend the period of the loan. Some loans can be given over 60 months (five years) but do remember that, because of interest being added to the loan, the car is unlikely to be worth what you owe until at least three years into the repayments. This means that, unless you can pay the ‘negative equity’, you will be unable to sell the car until the outstanding loan is small enough.

With no deposit on hire purchase, the moment you drive the car from the showroom you will owe more than the car is worth.

For full information on hire purchase, click here.

Personal Loan:

This is similar to Hire Purchase except that the loan is attached to you rather than the car - in other words, the car is not used as security. The cheapest (lowest interest rate) personal loans, however, often require security on your house - that is to say, if you failed to pay back your loan they could repossess your house and sell it to get the money back. But not all personal loans require this security, so look around.

A personal loan doesn’t require a deposit on the car.

For full information on personal loans, click here.

Personal Contract Purchase (PCP):

Similar to hire purchase in that the loan is attached to the car. However, monthly payments and initial deposit are kept down by deferring a lump sum until the end of the agreement. This is called a balloon payment and effectively means you pay your deposit at the end rather than the beginning.

The downside, of course, is that you will have to find the cash lump sum at the end or give your car back. PCP’s can be quite complicated, but they are a way of buying a car with little or no initial deposit.

For full information on PCP’s, click here.

Remortgage (Equity withdrawal from property).

This is where you borrow funds agains the value of your house. You can borrow as much as the lender will allow you up to a maximum of, usually, 25 years. You can do this by either remortgaging the house increasing the amount to allow you sufficient funds to buy your car, or you can take out a second mortgage.

The advantages are it makes you effectively a cash buyer with the dealer; you can spread your payments over a long period, thus keeping the monthly amount to a minimum; the loan is not attached to the car so you keep the car if you cannot make the repayments (although you may lose your house!); no deposit will be required for the car.

But there are massive downsides to this way of funding. Over the 25 years you will pay a large amount of interest and, of course, you are unlikely to keep the car for that length of time so you continue to pay for it long after you don’t have it any more. However, if you are good with money and you arranged a second mortgage, you may be able to pay back a large part of the loan when you sell the car.

We don’t recommend this method as a way to fund vehicle purchase.

For full information on remortgaging, click here.

Personal Contract Hire

This is a method of long term care hire - similar to hiring a car for a weekend, but over a much longer period, say one, two or three years. Usually targetted at businesses who require fixed cost motoring, the main advantage for private users being only a small deposit is required - such as the first two or three months payments.

For more information on Personal Contract Hire, click here.

Financing a new car