Car finance explained: what is a deposit contribution?

Deposit contributions are discounts that cut monthly payments on PCP finance and Hire Purchase deals

Christofer Lloyd
May 29, 2019

Purchasing a car on PCP finance can be a confusing process. Even if you’re only considering one type of car, deals can quote different interest charges, deposit amounts, contract lengths and mileage allowances. And then there’s deposit contributions.

What is a deposit contribution?

They are effectively discounts - typically paid for by the finance company or the car manufacturer - that reduce your monthly payments, making a car more affordable. These can be found on certain PCP finance and Hire Purchase schemes.

The larger the deposit contribution, the greater the saving. Another benefit is that because more money is being put down on the car upfront - the deposit contribution is added to any deposit you pay - the less interest you’re charged overall.

This saves you money whether you plan to hand the car back at the end of the contract or want to make what’s called the ‘optional final payment’ to buy it.

Deposit contributions are typically available on new car finance schemes, but can be found on a number of used car offers, too. The greatest savings can be seen on high-value new cars, with some manufacturers offering deposit contributions of £20,000 or more on certain £100,000 cars.

Even on £30,000 cars, contributions of £5,000 or more are not uncommon. In some cases the deposit contribution can more than outweigh the interest charges. This means that it’s cheaper overall to buy that car through the finance scheme than paying the cash price upfront.

Do bear in mind, however, that deposit contributions aren’t taken into account in the APR figures shown, which in theory shows how much of a premium you’ll pay to finance the car. This means that drivers comparing finance deals must consider both the scale of deposit contribution savings as well as APR charges.

A car with a £5,000 deposit contribution and 4.9% APR charge, therefore, could work out cheaper than another with 0% APR - or interest-free credit - and no deposit contribution.

The easiest way to establish which deal is best for you is to get like-for-like quotes, with the same deposit, contract length and mileage allowance, to see which offers the lowest monthly payment.

What is finance deposit allowance?

Finance deposit allowance, dealer deposit contribution, and manufacturer deposit contribution are all other ways of describing deposit contribution.

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