Deposit contributions are becoming increasingly common when you’re buying new cars on finance, but they aren’t the easiest thing to get your head around. Our simple guide explains what they are, how they work and everything else you need to know about them.
What are they?
A deposit contribution is a discount that can be offered by either car manufacturers or dealers to customers who take out specific finance products to buy their cars.
A deposit contribution is nearly always only available to finance customers, and there’s rarely an equivalent discount for customers who don’t buy using finance.
How do they work?
If you take up the offer of a deposit contribution, a specified amount of money will be added to your deposit to reduce the overall cost of the finance and therefore the vehicle.
This amount of money is then added to whatever amount of money you are putting into the deal: for example, if you are putting down £1,500 as a deposit and there is a £1,000 deposit contribution on offer, your total deposit will then be £2,500.
While the price of the vehicle you are buying will remain the same, the deposit contribution should still be seen as a discount and you need to keep in mind that this money has come from somewhere; either directly from the manufacturer or from the dealer’s profit margin to encourage people to take up this finance package.
Should I be wary?
Absolutely not. A deposit contribution isn’t a con; it’s a pretty transparent offer that does what it says on the tin. By all means be aware of how they affect the overall deal and its competitiveness, but there shouldn’t be any real pitfalls.
If you’re looking to buy a car on finance then a deposit contribution can essentially be free money, especially if it is coming from the manufacturer as a national promotion.
If all dealers of a particular brand have the offer on, you know that the manufacturer is backing it with hard cash from themselves and their finance supplier. In this case, it’s unlikely that the amount of money on offer will be available as an equivalent discount off the car if you are not taking out the specified finance or if you’re paying cash.
Even if you weren’t planning on using finance to buy your car, you can often take out the minimum amount of finance to be offered the deposit contribution, then pay off the balance of the finance as soon as you’re allowed to (typically after one monthly payment).
You may be charged a fee for doing so, but it’s likely to be far less than the ‘free money’ of the deposit contribution.
The only thing you need to be wary of with deposit contributions is how good the overall deal is that you are being asked to sign up to.
If it’s a manufacturer offer, you need to look at how much interest you are going to be paying over the term and decide if another finance product would be cheaper even without the deposit contribution. For example, if you are getting a £1,000 contribution for a 36 month PCP but you will be paying £1,500 more in interest in total than you would be with a rival finance provider, it isn’t much of a deal.
If the deal isn’t manufacturer-led and it’s therefore a dealer promotion, the money to pay for it will either be coming out of the profit in the car or from the commission in the finance. This could mean you are not going to be getting either the car or the finance as cheaply as you may be able to if you pass on the contribution and choose another deal.
It’s also worth noting that deposit contribution schemes change from quarter to quarter, so a car that has (for example) a £4,000 deposit contribution from 1 July to 31 August may suddenly lose the scheme and appear £4,000 more expensive on 1 September. We know people who have experienced this, so if you’re ready to buy, buy!
Don’t ignore deposit contribution deals just because they are usually only offered on pretty low finance rates. There’s no reason to be suspicious, and they usually represent good value.
Just treat them as you would any other discount such as free metallic paint or a free engine upgrade and look at the overall cost of the deal.