How much deposit do I need with bad credit in NZ?

You will see “10 to 20 percent” quoted all over the internet as the deposit you need with bad credit. It is a fair rule of thumb and a weak rule. It comes from lender and dealer guides, not from any law or regulator, and each lender can ask for more, less, or none. A better question is how much deposit makes sense for you, and the answer comes from the numbers.

What the 10 to 20 percent range means in dollars

Car price	10%	20%
$6,000	$600	$1,200
$9,000	$900	$1,800
$12,000	$1,200	$2,400
$15,000	$1,500	$3,000

For many people on a tight budget, 20 percent of a $12,000 car is a long way off. That is why the next section matters more than the percentage.

What each size of deposit saves

These are round, made-up figures for a $12,000 car, borrowed over three years at 20% a year, with fees left out. They are examples only, not quotes. Your lender sets your rate, and bad-credit rates can be higher or lower than this.

	No deposit	10% deposit	20% deposit
Deposit	$0	$1,200	$2,400
Amount borrowed	$12,000	$10,800	$9,600
Monthly repayment	about $446	about $401	about $357
Total interest	about $4,050	about $3,650	about $3,240
Total you pay, including deposit	about $16,050	about $15,650	about $15,240

Each $1,200 of deposit saves roughly $44 a month and $400 in interest. The saving is real, but it is not huge. Which is why the choice is less “do I have the magic number” and more “how much can I put in without leaving myself short?”

When a deposit matters most

A lender takes the car as security, so it wants to know what happens if the loan goes wrong. A car loses value quickly in its first years. If you borrow the whole price, you can owe more than the car is worth for a time. A deposit gives a cushion. It matters most when:

• the car is newer and drops in value faster,
• your file has recent problems,
• your budget leaves little spare each week,
• the loan term is long.

It matters less when the car is cheap and old, the loan is small, and the budget is comfortable. For some of those requests, lenders look at options without a deposit, as our no deposit page explains. We do not repeat that page here.

Do not drain your safety net

The temptation is to put every dollar into the deposit. Resist it. After you buy a car you still need money for registration, a warrant of fitness, insurance, fuel and the first repair. If a deposit leaves you with nothing in the bank, one surprise bill can lead to a missed payment on the new loan. A lender who sees a few weeks of spare cash in your account may be more comfortable than one who sees an empty one.

A sensible split for many people is: part toward the deposit, a small amount kept back for the first few weeks of running costs.

Ways to build a deposit

1. Pick a target and a date. Something like $1,000 in 12 weeks. Write the weekly figure down: $1,000 over 12 weeks is about $84 a week.
2. Pay yourself first. Set an automatic transfer on payday into a separate account, so it is gone before you can spend it.
3. Sell something. Unused gear, a spare bike or tools can add a few hundred dollars.
4. Use a trade-in. The value of your current car counts as deposit. Get a few offers and compare them with the price on the new car, as dealers can adjust one to offset the other.
5. Pick a cheaper car. Dropping the price by $1,200 reduces the loan by the same amount as a $1,200 deposit.
6. Ask whanau. A gift can serve as a deposit. Be open with the lender about where it came from.
7. Check Good Shepherd. Good Loans are no-interest, fee-free loans that can help with a car purchase, up to $7,000 for cars at the time we checked. They are income-tested and take time to apply for.

What about borrowing the deposit?

Be wary. Taking a payday or quick-finance loan to fund a deposit is a poor trade, as Consumer Protection lists these loans among things that can be viewed negatively on a file. A second loan also adds repayments that a lender must count when it checks affordability. If someone offers to lend you the deposit and add it to the car loan, that is borrowing the full price by another route, and the extra interest is yours to pay.

How to pick your own target

Work backwards from the weekly budget instead of forward from a percentage.

1. Work out how much you can pay each week toward the car, after registration, insurance, fuel and a repair buffer.
2. Check what loan that repayment supports over three years, using the pattern in the table above: roughly $37 a month for every $1,000 borrowed at 20% a year.
3. Subtract that loan from the car price. What is left is your deposit target.

For example, if you can manage about $350 a month, that supports a loan near $9,400 at the same illustrative rate. On a $12,000 car, the gap is about $2,600. If that is too much, the choice is a cheaper car, a longer saving period, or a deposit plus a smaller repayment. The rate you are actually offered will change these figures, so treat the result as a first pass, not a quote.

If you cannot reach the target

You do not have to fail the whole plan because you are $500 short. Options are to lower the car price, wait a few more weeks, or ask a lender or broker what they would look at with the deposit you have. Our bad credit car yards page covers what to check when a yard offers a low deposit, and the lenders page covers who looks at what. A lender or broker may still consider a smaller deposit when the income is steady and the car is modest. Nobody can promise that, but it costs nothing to ask.

Deposit or a cheaper car?

They do the same job for the loan, so compare them. A $12,000 car with a $1,200 deposit leaves a $10,800 loan. A $10,800 car with no deposit leaves the same loan. The difference is what you get: the first gets you a better car and uses your savings, the second keeps the savings in your account. If your budget is tight, keeping the cash and buying the cheaper car is often the safer choice, because you still have a buffer for repairs. If the cheaper car is unreliable and likely to cost you in repairs, the deposit on the better one may be worth more. Ask for a pre-purchase inspection either way.

Proof lenders may ask for

• Bank statements showing where the deposit came from.
• A letter from whanau if it is a gift.
• A valuation or buy price if you are trading in a car.
• Details of any money owing on the trade-in.

Checklist before you hand over any money

• I know the total price, in writing.
• I know what the deposit is and whether it is refundable if the deal falls through.
• I have asked who holds the deposit and where it goes.
• I have enough left for registration, insurance and a first month of running costs.
• I have compared the total repayable at two different deposit sizes.

Red flags

Be careful of a dealer who asks for a large non-refundable deposit before any finance is arranged, who will not put the deposit terms in writing, or who raises the car price when you offer cash. A deposit is part of the price. It should appear on the paperwork. If a deal falls apart, ask for the terms on refunds before you pay.

If budgeting is the real barrier, MoneyTalks offers free, confidential help on 0800 345 123 or by text on 4029. Our guide on bad credit car loan interest rates shows how the rate changes the maths above.

Sources

• Getting a loan for your car, Consumer Protection
• Buying a car from a dealer, Consumer Protection
• Credit checks, scores and history, Consumer Protection
• Good Loans, Good Shepherd
• Commerce Commission, motor vehicle financing and add-ons review (2021)

When you know roughly what you can put in, answer four short questions. It is not a credit application.