PCP car finance: when to put down a deposit

  • The higher your deposit, the lower your monthly payments
  • Put down a big deposit to cut the amount you pay in interest
  • Make the most of zero-percent APR by not placing a deposit

Car companies jump up and down to promote how little you can pay every month to get one of their cars on your drive, however, what’s just as important – to establish whether an offer is good value – is the size of the deposit.

Put down a £19,000 deposit on a £20,000 car and monthly payments will be tiny. Don’t place a deposit at all, though, and you can expect much higher monthly costs – and potentially much greater interest charges.

Shop around, however, and you can find some great value low- or zero-deposit finance offers. Work out how much you can afford to borrow with our finance tool.

Be aware of what APR rate you’re being charged

Interest rates vary wildly on car finance schemes – affecting both the size of your monthly payments and how much you pay in total. 

Don’t do your homework and you could find yourself locked into an extortionate 9.9 percent APR finance contract – which could see you paying a 20 percent premium over three years, if you choose to buy the car at the end of the contract.

If you’re considering a number of models, you might be able to find some zero-percent APR offerings – which don’t charge anything extra for the privilege of spreading the cost of the car. 

When not to put down a car finance deposit

A handful of manufacturers offer zero-deposit, zero-percent interest deals. As no interest is being charged on the amount you borrow, there’s no incentive to put down a deposit – provided you can afford the monthly payments. 

Put down a £4,600 deposit on a £20,000 Mazda 3, for instance, and monthly payments stand at £209. Put no deposit down, however, and you’ll need to stump up £337 every month. The total amount paid is identical in both cases.*

If you can stomach higher monthly payments, therefore, you could be better off by putting any money you had set aside for a deposit into a high-interest bank account. Or you could use it towards other essential purchases to avoid having to borrow any additional money at a higher interest rate. 

If you can’t afford a deposit, consider shorter-term deals

Should you simply not have enough saved to place a deposit and you need a new car immediately – and you can afford slightly higher monthly payments – a shorter-term PCP scheme could fit the bill.

With interest charged over a shorter period, you’ll pay less overall if you buy the car at the end of the contract, though monthly payments will be higher. Some brands, including DS, also feature much lower interest rates on three-year deals than four-year ones.

Opt for a DS 3 1.2 PureTech 130 Elegance through PCP and you can cut interest rates from 6.9 percent – for a four-year term – to 2.9 percent over three years. Consequently, monthly payments are only £2.46 higher with the shorter term, while the total amount payable if you buy the car is a whopping £2,047 less.*

Place a deposit to get best interest rates and cut monthly bills

Even if the interest rate on a PCP deal is reasonable, you’ll pay lower monthly payments and less overall by putting down a deposit. Therefore, the larger the deposit you can afford, the better off you should be – unless your money could be earning a greater amount of interest in a high-interest account than you’re being charged on your car.

The higher the interest rate and the longer the term, the more you’ll benefit from putting a deposit down. Opt to run a Jaguar F-Pace 2.0d AWD R-Sport on PCP and you could save £840 in interest (if you buy the car outright) by placing an £8,000 deposit compared with putting nothing down – thanks to 6.8 percent APR.*

Some manufacturers also reserve the lowest interest rates to those putting down a minimum deposit, so it’s worth comparing the costs of deposit and zero-deposit plans with the dealer before you sign anything.

Confused by the prospect of car finance? Take a look at our guides below:

Calculating car finance: How to get the sums right

Our top tips for finding great value car finance

Which car finance option is right for you?

How to find zero-deposit finance that will save you money

What is PCP car finance?

*Deals are correct at time of publication. Everyone’s financial circumstances are different and credit is not always available – Parkers cannot recommend a deal for you specifically. These deals are indicative examples of some packages available this week.