Do I have to pay any money upfront when buying a car?

Buying a car is a big deal, which is why we try to be as helpful and supportive as we can throughout the process. A big part of this is answering your questions; and one question we frequently get asked is – will I have to pay anything upfront when buying a car on finance?

To help us with this question, we turned to one of Zuto’s directors and co-founders, Ryan Dignan. He’s got years of experience with dealers, so knows a thing or two about how to pay for a car:

“In short: Yes! In almost all cases, you will be expected to pay some money upfront.” This may seem a bit strange, especially if you’ve arranged to put the whole cost of your car on finance, as you probably think that means you have to pay nothing in advance.

But, Ryan explains, “If you spot a car you like at a dealership, and you don’t want them to sell it to someone else, you will need to pay what’s called a holding payment”. This may also be referred to as a deposit or a holding fee by some dealers, so you need to make sure it’s a holding payment they are actually talking about.

What does the holding payment do?

The holding payment does exactly what it says on the tin – it holds the car for you until you are ready to complete the sale. It shows you have a level of commitment to buying the car that allows the dealer to take it off the forecourt and be confident you are going to come back.

If they weren’t to ask for a fee, you could simply change your mind, walk away and lose nothing. However, Ryan adds: “The dealer will have lost out on several days of selling time in which they could have sold the car.”

So, in reality, a holding payment protects both of you, it shows the dealer is committed to selling to you and that you are committing to buying the car.

When should you make a holding payment?

Something we need to make really clear is that you shouldn’t pay anything to any dealer until you have had confirmation from us, or your lender directly, that you have been fully approved for HP finance or PCP finance for that particular car. Remember, being fully approved is different from an agreement in principle.

This is because some lenders may have certain criteria that the car needs to meet to be approved for finance; and the last thing we want is for you to be disappointed. So please check with us that the car will be approved before you pay anything to the dealer. Once the sale is completed and you’re ready to drive away in your shiny new car, the holding fee will be refunded to you.

This brings us to another important point that we feel we should make you aware of – how the holding payment will be refunded to you. Some dealers may ask for the holding payment to be paid by credit card, but will use a cheque to return it to you. This may not seem like a big deal, but just keep in mind that the funds will take longer to clear when paid in by cheque than they would by card.

How much is the holding payment?

The amount your holding payment comes to depends on the dealer and sometimes the cost of the car – the more expensive the car, the higher the holding fee may be.

However, to give you some idea of what you might need to save up, in general, holding payments range from about £100, which is usually the minimum any dealer will accept, right up to £500-600 or more.

That may seem like a lot of money, but as we said, it’ll be refunded to you when the sale completes, so you’ve not really paid anything. Think of it like a loan to the dealer until the sale is complete.

Can you haggle with car dealers?

Just because dealers may request a certain holding payment, that’s not to say that the amount can’t be negotiated, Ryan commented, “Dealers are happy to make deals, so if you tell them you really want the car, but you don’t want (or can’t afford) to pay the holding payment they’re asking for, you can try haggling.”

Alternatively, our team of car finance experts will be happy to haggle for you, if you don’t feel confident that you’ll get a good deal for yourself.

If I put a deposit on a car, can I change my mind?

Whether you can change your mind after making a holding payment depend on the dealer. In general, all dealers will keep the holding payment if you simply change your mind and walk away from buying the car. This is standard practice for most things that you put a holding payment on, like when you rent a flat for example.

Ryan tell us why they keep the payment, “They keep the amount as compensation for anything they’ve started to do to prepare for the sale. They may have carried out some mechanical checks on the car, tidied up the bodywork or started to complete the paperwork, for example.”

How to pay for a car if I can’t afford the holding payment?

If you can’t afford to pay a holding payment, it doesn’t mean you can’t buy the car. What it does mean is that the car will not be held specifically for you.

So, in reality, if someone else comes along to the dealer, sees the car you’re interested in and offers to pay cash on the spot, you’re probably going to lose out on that particular car.

But don’t forget, there are plenty of cars for sale; you haven’t lost any money, and losing out on one car just means there’s a better one waiting around the corner, right?

If you’re thinking of using finance to buy your next car and you want to know more about how it works, or if you just fancy a chat with someone about how Zuto can help you, get in touch with our team today. Alternatively, check out even more help and advice from our experienced finance experts.