What is a deposit contribution?

Car buying advice Car finance advice
A deposit contribution is a disocunt offer linked to car finance - The Car Expert

“What is the difference between a discount and a deposit contribution?” – asked by Tracey D.

Many car manufacturers advertise a deposit contribution as part of a finance offer on a new car – and sometimes on a used car. But what is the difference between (for example) a £2,000 discount and a £2,000 deposit contribution? After all, it’s £2,000 that the customer doesn’t have to pay, right?

With a normal discount, a seller offers any buyer a reduction in the price of the vehicle, regardless of how the customer is paying for the vehicle. Simples. The problem with that plan is that the discount comes directly out of the seller’s profit margin. So a £2,000 discount on a £20,000 car means that the customer saves £2,000 but it costs the seller £2,000.

A deposit contribution means that the manufacturer and/or dealer and/or finance company is giving you an amount towards the car, but with strings attached. And the key string is that you have to take the manufacturer’s finance to get the deposit contribution (and sometimes, it has to be a specific finance plan like a PCP, rather than any other finance plan they may offer).

So a £2,000 deposit contribution means that the seller is still taking a £2,000 hit up-front, but they get to make at least some of it back (or possibly even more than it originally cost them) in finance profit over the following years.

How does a deposit contribution affect me?

Well, that depends on how you are financing your car. In some cases, it makes virtually no difference to the customer at all whether you are getting a discount or a deposit contribution. If you are financing the car through the dealership anyway, then a dealer giving you £2,000 off the car’s price is the same thing as them giving you £2,000 towards the car’s price – it’s £2,000 you don’t have to spend.

However, if you are not planning to take the manufacturer’s finance offer then you won’t be eligible for the deposit contribution, meaning you have to pay the extra £2,000.  This means you need to work out whether or not it’s cheaper for you to still pay by your planned method, or take the manufacturer’s finance and claim the deposit contribution.

Even if you have got a lower interest rate from another finance company or bank, it might still cost you more than using the dealer’s finance and getting the cash from the manufacturer. So get your calculator out and crunch your numbers carefully.

Can I get a deposit contribution without taking their finance offer?

Officially, no. To be eligible for the deposit contribution, you will almost certainly have to sign up for the dealer’s finance plan. However, there is usually a loophole in the contract which you can take advantage of…

How to claim the deposit contribution without taking the finance

Any PCP or HP car finance offer sold at a car dealership in the UK is a regulated agreement subject to certain legal provisions. One such provision is that you can cancel your finance agreement within 14 days of it being activated, with no penalties or charges and no affect on your credit score.

So if your plan is to pay cash for your new car, you can:

  1. Sign up for the manufacturer’s finance offer. which allows you to take advantage of the deposit contribution
  2. Take delivery of your car
  3. Immediately cancel the finance

This will result in the finance company immediately invoicing you for the amount borrowed, which you pay them with the cash you were going to use anyway.

Isn’t there some kind of catch?

Not usually. The only possible catch would be if the dealer wrote on the vehicle contract that the deposit contribution would be negated if the finance was cancelled, and that you would have to pay it back. However, that almost never happens, and it is fairly problematic for the dealer and manufacturer to enforce anyway. Simply, once the customer has driven off in their new car, any chance of getting more money out of them is going to be slim.

The manufacturers also know that the vast majority of customers will not cancel their agreements, so they are content to keep offering deposit contributions instead of discounts. If it becomes a much bigger issue then they may start to look for other alternatives.

The key thing to remember is that you have 14 days from the contract being activated to cancel the finance agreement. You need to do this in writing and you need to be very clear with the finance company.

If you don’t properly communicate your cancellation to the finance company (or if you forget…) and you go over the 14-day cancellation period, you will be subject to fees and charges when you try to cancel the agreement.

It’s also important to remember that cancelling your finance agreement doesn’t mean you can give the car back. It just means that you have to pay cash to cover the amount you borrowed to buy the car. So don’t think that this is a way to get out of your obligations after you have taken delivery of your vehicle. For more information on that, have a look at this article.

What if I’m financing elsewhere?

I know of a few customers who have juggled two finance deals to try and beat the system – signing up to the manufacturer finance offer to get the deposit contribution, then cancelling it and signing up to another lower-rate finance offer elsewhere to pay the manufacturer finance company back.

This is risky, because if there are any delays in getting your second finance plan set up and paid out, you will miss out on paying back the manufacturer finance company on time. Not really recommended unless you are very confident in what you are doing…

Stuart Masson
Stuart is the Editor of The Car Expert, which he founded in 2011, and our new sister site The Van Expert. Originally from Australia, Stuart has had a passion for cars and the car industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

39 Comments

  1. Great article. If I take the finance to get the deposit contribution and then promptly cancel within14 days and settle the balance will the dealer lose out on a kick back from the finance company?

    In addition is it the total price for the car I owe with no interest?

  2. stuart

    Hi Gavin. The dealer will not get their finance commission if you cancel your finance (it usually doesn’t get paid until a few months after the sale), so it is no different to a cash deal for them.

    Yes, the finance company should invoice you for the original amount borrowed. The 14-day cooling-off period is your legal right.

  3. As an update I was thinking of taking the PCP for 3 months so the dealer gets their cut and I save a bit of cash. However I was told at the dealership that the PCP loan interest was not front loaded. Yet when I phoned the finance company’s helpline they say it is front loaded. So since I can’t crunch the numbers accurately to work out what I would owe either taking the PCP and cancelling within 14 days or no PCP is the only way for me to go.

  4. stuart

    It’s definitely front-loaded.

  5. stuart

    Actually, sorry, that’s an over-simplification. The interest is calculated up-front, but you don’t pay 100% of the interest up-front. But it basically amounts to the same thing in real-world terms.

    In the early part of your agreement, you are paying a lot of interest because the interest is being calculated on the total amount outstanding. So you are essentially only paying off interest with just a tiny amount of capital being paid off. If you settle after 3 months, you will basically have paid 3 months’ of interest and virtually zero capital, so your settlement figure will be no lower than if you cancel within 14 days. In fact, there will be additional fees attached, so it will probably be higher.

  6. Ok, so let’s say the total cash price for the goods is £30k and the monthly payments are £300, with a deposit of £10k. So if I settle after 3 months my termination amount would be £900 in payments plus £20k and some fees? So my £2k deposit contribution would only really be worth now £1100?

    In that case no more mr nice guy!!

  7. stuart

    Yeah, that’s why they don’t ever really point these things out to you… Luckily, The Car Expert is here to save the day! (cue trumpets).

  8. Big thumbs up to the CarExpert for helping me understand this difficult subject. Thanks Stuart!

  9. I have a bit of a problem I've signed a contract of sale two days ago but I find out today that I am losing my job so I won't be able to manage the payments. I have not received the keys yet due to there being a problem with my licence being out of date they said that they will not start taking payments till I receive the keys. I just wanted to find out if there's anyway I can cancel this contract before it really starts?

  10. Stuart Masson

    Hi Chris. You should be able to get out of it, but it might be tricky. Have a read of this article about cancelling a car purchase after you’ve signed the contract.

    You have 14 days to be able to cancel the finance, but that doesn’t cancel the vehicle purchase (it just means you have to pay for it rather than financing it). If the dealer has already registered the car in your name, it may not be possible to unwind and therefore another owner would be added to the car. If the dealer is sensible, they won’t have registered it without the licence being correct.

    In any case, you are likely to lose your deposit.

  11. Hi Stuart, in 6 days into a HP agreement with VW finance and intending to withdraw in the next couple of days. I went down the finance path to make use of a £500 deposit contribution and 2 years free servicing. Total amount of credit is £9,240 @ 12%, I would end up paying £1,252 interest over the term.

    I don’t want to withdraw and potentially lose the 2 years free servicing (although there is no mention of losing this or the deposit contribution in any contracts). So are there other ways I could pay the credit off within a couple of months where I don’t have to pay a lot of interest or early settlement fees?

  12. Stuart Masson

    Hi Mikey. Chances are that they will not be able to claw back the deposit contribution, as effectively they’ve already ‘given’ you that money and would have to chase you to get it back. However, the free servicing is another matter, since they can simply cancel that and not give you the free servicing as and when it is required. It would come down to the fine print of the terms and conditions in the contract and the advertised offer, but your legal costs in challenging them would be greater than the value of the service.

    Any time you settle the finance agreement early, you will save on the interest payable for the remaining term (e.g. – if you cancel one year into a four-year agreement, you will save three years’ worth of interest), but there is an early settlement fee which is usually equivalent to a couple of months’ worth of interest. So overall you will save money compared to paying hit off over the full term, you just need to weigh up how much the free servicing is worth and how much you are paying in interest and fees.

  13. Thanks Stuart. I’ve been advised by a friend to pay the majority of the loan now leaving just a few hundred pounds left. Let them take the first payment and then ask to settle straight afterwards, apparently I will then only pay a small amount of interest on settling. Does this sound right to you?

  14. Hi Stuart,

    A BMW dealership is currently offering a £6,777 deposit contribution.

    In the examples you gave above it would seem like a no brainer to jump on this as if one was to cancel the finance arrangement within the 14 day period the saving would be astronomical.

    What are your thoughts on this?

    James

  15. Stuart Masson

    Hi James. Yes, you should be able to do that unless there was some clause in the contract which allows them to claw back the deposit contribution if you cancel the finance within a certain time.

  16. Hi Stuart,
    Wondering if you can help me in this, please. I would like to buy an used car up to 6 years old, and not that many mileage on the clock. The upper limit is £6000. I have £2000 cash that I would like to place them towards these £6000. Do I understand correct that am I looking to be financed £4000? Or is it better to look into a car that costs £6000 and ask for a finance just for £4000. Any reply is appreciated. Thanks

  17. Stuart Masson

    Hi Adrian. I’m not sure I understand the difference of what you are talking about. As I understand, you have £2,000 cash and want to borrow £4,000 to buy a £6,000 car. This is certainly possible, although the APR on dealer finance is likely to be very high. You may be better off getting a personal loan from a bank, but research your options and see how they compare.

  18. Hi Stuart,

    So back in October we bought a car on pcp with £1000 deposit cash , the car had issues for months and the can was rejected in January 2016 , as part of this we ordered a brand new car and was told the deposit from my original car would roll to the new one and an additional £500 would be paid on collection so a total of £1500 in my eyes ,

    We collected the car in March and the car went back for repairs after only 7 days so we decided to cancel the contract or terminate it, the dealer has agreed and said we would receive our £500 deposit back as shown on the finance agreement.

    It looks like some number fudging has gone on and we have had a discounted car buy £1000 with a deposit paid of £500 . This has been totally miss reprisentes to us, we’re do I stand legally to get the original £1000 back. Obviously I don’t want to lose it.

    Who should I seek advice from ?

  19. Stuart Masson

    Hi Alan. Have a read of our recent article about resolving a dispute with a dealer, as it should provide the sort of info you need to sort it out.

  20. Hi Stuart,

    I was just wondering if my dealership are able to pay for my finance deposit, if so how can this be worked out as I can afford monthly payments for the car without a deposit, but havn’t got the £1500 which the finance company need, due to having negative equity as im only a year into my 3 year pcp and my car doesn’t cover the cost of the settlement figure.

  21. Stuart Masson

    Hi Brett. Most finance companies will want to see some level of deposit, as it proves that you have some form of financial wherewithal. If there is a deposit contribution on offer, that can be used to help clear the negative equity, but you normally still need to have some deposit of your own. For more information, have a read of our articles about settling your PCP early and the early upgrade myth.

  22. Hi Stuart. My issue is similar to Bretts. I have negative equity of £1500 in my PCP deal. Two of the three garages I went to wanted that paid first before stating a new PCP, however, a third garage are giving me £3500 deposit contribution they claim is being used in part to settle my negative equity.
    Does this sound legit, i just don’t want this to be sneaky way of this garage lumping my negative equity on top of a new deal and the whole new PCP being calculated on that. I only ask because the other two garages were adamant that I pay the negative off first before they would entertain me.
    Regards.

  23. Stuart Masson

    Your negative equity does have to be paid as part of the settlement of your current finance agreement. However, the dealer can use the deposit contribution to pay off your negative equity. That just means that instead of getting a £3,500 discount on your new car, you are only getting £2,000. So while your negative equity is not technically being “lumped on too of the new deal”, it’s kind of the same thing since that £1,500 has to be paid off somehow.

  24. Hi Stuart,

    I recently signed up for a VWFS PCP for a used car through an authorised Audi dealer however I have not yet taken delivery of it which will happen this coming Tuesday.
    I’ve decided that I would rather fund the purchase outright, so i understand that I can withdraw from this as it is within the 14 day cooling off period.

    However, the contract says that the agreement comes into effect the day that I signed it although, as I say, I have not yet taken delivery of the car yet.
    Does this mean that the cooling off period is already in force or does it come into force the day I collect the car?
    It does not say the latter in the contract.

  25. Stuart Masson

    Hi Joshua. The contract is not supposed to commence until you have taken delivery of the vehicle, otherwise a dealer could simply sign you up and then wait until after the 14-day period to deny you the opportunity to cancel.

    In any case, there is nothing to stop you cancelling the agreement before you take delivery of the vehicle – in fact, it would make everyone’s life easier.

  26. Hi Stuart.

    Just an update on the situation. Although the contract stated that the agreement commenced on the day it was signed, the finance company said that it actually came in to force 3 days after I took delivery of the car. I had 14 days from that date to withdraw from the agreement which expired last Saturday.

    I withdrew from the finance agreement within the time limit and have now paid off the finance. I took advantage of the deposit contribution offer and nobody has demanded the deposit contribution back.

    So I’ve managed to get a great car with a significant discount! Thank you so much for the great advice on this page!

    Josh

  27. Stuart Masson

    Hi Joshua. Glad it worked out well for you, and happy our advice was helpful.

  28. Hi Stuart,

    I’m looking to follow your advice from the article and withdraw from the PCP finance within the 14 day cooling off period.

    I have not yet taken delivery of the car, however I have just received the credit terms and under the Right of Withdrawal section, it specifically states that all money owed must be repaid, plus any contributions received in relation to the credit.

    Clearly, this is intended to claw back the dealer contribution, but how enforceable is it? Does it constitute an unfair contract or breach any FCA/Consumer Act guidelines with regards to incentivising credit? Will the finance company add the amount to their invoice, or will the dealer ask me separately?

    Thanks

  29. Stuart Masson

    If it’s in your contract/terms of credit, you are agreeing to be bound by it when you sign. However, they can’t invoke a clause that wasn’t presented at time of signing.

  30. Thanks Stuart for the quick response. I’ll have a think but may just fully settle in the first month to avoid the hassle and risk of losing the contribution.

  31. Hi there,

    I have a few questions regarding finance and deposit.

    The vehicle I am interested in is a Mercedes and worth £74,000 brand new, however I am getting it reduced to £63,425.51 from a private dealer however if I was to buy from Mercedes brand new will cost me nothing less than £74k

    Based on the finance, I plan to make a deposit £10,000 and here is the quote I am getting based on that:

    On The Road Price £63,425.51

    Customer Deposit £10,000.00

    Retailer Deposit Contribution £2,498.91

    Manufacturer Deposit Contribution £2,498.91

    Total Deposit Contribution £4,997.82

    Amount of Credit £48,427.69

    Optional Purchase Payment £29,400.00

    Cost for Credit £5,815.11

    Purchase Activation Fee £10.00

    Total Amount Payable £64,242.80

    Duration of Agreement 36 months

    Annual Mileage 10,000 miles

    Fixed Interest Rate4.91 %

    Representative APR5.0 %

    36 Monthly Payments of £689.80

    My questions to is are

    1. What happens if I cancel the finance within 14days, do I get any funds back and what would I be required to pay back ?

    2. If I stick to the contract and 36months, I decide to pay the optional purchase payment of £29,400 does my deposit count towards the final payment and if not what really happens to my deposit ?

    3. Would I ever get my deposit back if I decide to give them back their vehicle after 36months contract ? You know just like rent, you pay a deposit and its given back to you when you move out of the property.

    Apologies for the long and detailed questions, your response would be highly appreciated.

    Regards

  32. Stuart Masson

    Hi Omar. To answer your questions:
    1) If you cancel within 14 days, the finance company will simply invoice you for the £48,427.69 (although they may try to invoice you for the deposit contributions as well, which they can’t do unless there is a clause saying that the deposit contributions are dependent on keeping the finance for a minimum period).
    2) Your deposit is an up-front payment. You will never get it back. It just means you pay a lower amount each month.
    3) Your deposit is an initial payment, not a bond. You will never get it back.

  33. Hi Stuart,

    Thank you so much from your response. Still a bit confused about what the finance legal requirements are, so if I was to cancel within 14days you clearly mentioned I would be invoiced £48,427.69 (would I still be required to make the monthly payments for 36months ?)

    And also how I exactly can I benefit from the deposit contribution if I cancel within 14days in layman terms please.

    Many many thanks!

  34. Stuart Masson

    The PCP agreement has a 14-day cooling-off period – but that doesn’t cancel the car purchase. The finance company pays the dealer for the car (according to you, the amount financed is £48,427.69), so if you cancel the finance then you have to pay the finance company for what they paid the dealer. Your finance agreement will then be cancelled and there will be nothing further to pay.

    The deposit contribution is a discount connected to the finance offer. If you cancel the finance, the dealer may try to insist that you refund the deposit contribution. But unless the contract clearly stipulates that the deposit contribution is contingent on you not cancelling the finance, they can’t enforce that.

  35. In VW, latest contracts for a Polo they are offering 1800 deposit contributions and saying that customer deposit is 2445 so do I minus 1800 off 2445 to work out what I have to pay towards the deposit? Or will I indeed pay 2445 as well on top of the contribution?

  36. Stuart Masson

    Hi Lisa. Usually, if the offer refers to “customer deposit” then that would be on top of any deposit contribution from the finance company/dealer/manufacturer.

  37. I have just taken ownership of a used Hyundai from a Honda dealership (the car was a trade in). The dealership was offering a 3 year warranty if I took out an HP finance deal with Honda Finance. However, if I decided to withdraw or settle early from the finance agreement then my warranty would revert to 12 months. I have spoken to the finance company and they said that warranties are nothing to do with them and that they wouldn’t even tell the dealership if a finance deal was withdrawn from or settled early. I also spoke to the warranty provider (third party company that dealership uses) and they strongly implied that cancelling a finance agreement is nothing to do with them. They have the warranty on record and that’s all that they care about. I really would like to withdraw from the finance agreement, but I do not want to lose my 3 years warranty. Do you think it is worth the risk?

  38. Stuart Masson

    Hi Neil. If both the warranty provider and the finance company are saying one thing, but the dealer is saying another thing, I’d be inclined to go with the majority view. What is certain is that if you withdraw from the finance agreement within the 14-day cooling-off period, or settle it in the first month or two, the salesman won’t get his/her commission on the warranty and finance sales. That’s why they are particularly keen for you not to cancel the finance. Nothing to do with your best interests…

  39. Thanks Stuart. I appreciate the response. I have since spoken to the finance company and they told me that the only way the dealer would know if I had withdrawn from the finance deal was if they actually asked the finance company directly. I’m beginning to think that it may be worth the risk.

What are your thoughts? Let us know below.

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