Car finance explained: what is a deposit contribution?

Deposit contributions are discounts that cut monthly payments on PCP finance and Hire Purchase deals, cutting the amount of interest you pay

Christofer Lloyd
Dec 12, 2019

Purchasing a car on PCP finance can be a baffling process. Even if you’re only considering one type of car, deals can quote different interest charges, deposit amounts, contract lengths and mileage allowances, making it impossible to compare them without getting new quotes. And then there’s deposit contributions.

Despite the fancy name, these are just finance 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 and the larger the reduction you'll see in monthly payments. 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.

Deposit contribution: car finance discount

Deposit contributions are good news as they save 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.

They 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 new cars, deposit contributions of £5,000 or more are not uncommon. In some cases the deposit contribution can more than outweigh the interest charges. In those cases, it’s cheaper overall to buy the 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, despite these claiming to show how much of a premium you’ll pay to finance the car. This means that drivers comparing finance deals must consider both the size of any deposit contribution savings as well as the 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 - also known as 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 for the same type of finance, with the same deposit, contract length and mileage allowance, to see which offers you the lowest monthly payment.

What is a finance deposit allowance?

The terms finance deposit allowance, dealer deposit contribution, retailer contribution and manufacturer deposit contribution are all other ways of referring to deposit contributions.

Effectively these are all simply discounts available to those taking car finance - typically on PCP or HP schemes - which help to reduce your monthly payments.

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