Do I have to pay a deposit on a car?
We look at the benefits of paying a deposit on a car you're interested in and how it benefits you in the long term. We also look at whether a deposit can be included in your finance agreement with the bank and what it means to your repayments.
You've heard the term used in adverts for cars, offering you a set amount per month with no deposit. It's made out to sound like an added value offering, a deal sweetener and a lure to get you into the showroom. A deposit will serve several purposes when buying a car and by and large, it's a good thing to do.
Related: If I put a deposit on a car, can I change my mind?
What is a deposit?
A deposit is an amount that you pay upfront when buying a vehicle or showing interest in a vehicle. It serves several purposes, with the main benefit being lower instalments and a smaller amount to finance. If you were to put down an R10 000 deposit on an R100 000 car, you would only need to finance the balance of R90 000. This makes the interest you are charged less and lowers your monthly repayments.
A deposit is also a way of securing a vehicle while the finance is approved and the vehicle is prepared for you. With this money paid, you're showing an interest in buying the vehicle and effectively removing it from the market. While a deposit is not a legally binding agreement, the dealerships will be prepared to hold the vehicle for you for a set amount of time before placing it back on the market, should you not wish to proceed with the purchase.
In order to legally secure a vehicle, you must sign an Offer To Purchase (OTP) agreement.
Do you have to pay a deposit?
While paying a deposit has many benefits, primarily bringing down your monthly repayments, it's not a requirement for purchasing a car. Many dealerships will allow you to finance the entire amount if you ask them to, and this will include the deposit amount. Just be aware that you will be charged interest on this amount as well.
We would always recommend putting down as big a deposit as possible, as this will help you in the long run. You pay less every month in instalments, your interest is lower, and your repayment term can often be reduced because of a sizeable deposit.
If you want to avoid all these things, consider purchasing the car cash. Buying a car with cash vs financing in South Africa
