The difference a 10%, 20%, and 30% deposit makes on a car loan

A deposit can be a great way to bring down your car ownership expenses.

When financing a new set of wheels, the amount you pay back on a monthly basis is largely determined by the value of the loan, and one of the only ways to reduce this value is by paying an upfront deposit.

A deposit is described as a lump sum of money put towards the purchase of a vehicle, usually calculated as a percentage of said vehicle’s price.

By paying one, not only will you be trimming back your monthly expenses by doing so, but you’ll also be saving much more than the initial deposit was worth over the course of a credit agreement.

For example, say you want to finance a new Toyota Starlet Cross like what many people in the country are likely going to be doing, you could save tens of thousands throughout a 72-month finance contract at the current prime interest rate of 11.75%.

The crossover sells for R299,900, which with a 0% deposit will see you spending a total of R425,998 on paying it off, split between the principal finance amount of R301,108 and interest fees of R124,890.

With a 10% deposit of R29,990, your total expenditure will come down to R384,064, a savings of R41,934.

With a 20% (R59,980) deposit you’ll save R83,868, and with a 30% (R89,970) deposit an even more considerable R125,802.

Instead of reducing your monthly dues, you can also use a deposit to shorten the loan term while keeping the instalments the same.

Additinally, a deposit can be paid to secure a vehicle while finance is being approved, as it shows you are keen on buying it and won’t walk away from a deal last minute.

While it may not be possible for everyone to take out a massive wad of cash whenever they buy a car, it’s worth putting down whatever you can muster as it could save you more in the long run than what it would cost in the moment.

The numbers in detail

For a R250,000 car financed over 72 months at the current prime interest rate of 11.75% with no balloon, like the Suzuki Swift GL Auto, the monthly expenses with different deposits would be as follows:

For a R500,000 car financed over 72 months at the current prime interest rate of 11.75% with no balloon, like the Chery Tiggo 7 Pro Max Premium, the monthly expenses with different deposits would be as follows:

For a R750,000 car financed over 72 months at the current prime interest rate of 11.75% with no balloon, like the LDV T60 Max Luxe, the monthly expenses with different deposits would be as follows:

For a R1 million car financed over 72 months at the current prime interest rate of 11.75%  with no balloon, like the Toyota Hilux GR-Sport III, the monthly expenses with different deposits would be as follows: