Deposits, why are they are needed?

Introduction

When it comes to purchasing new assets, vehicles or equipment, an initial cash deposit is a decision that may be optional or in some cases required. How do you know if paying a deposit will be required for your situation? In this blog we will breakdown the situations where a deposit is required as well as the pros of paying a deposit if it is optional.


Firstly, lets discuss the function of a deposit. A deposit is paid directly to the supplier NOT the lender. Side note - A deposit may be required by the supplier to secure the goods. A deposit brings down the overall amount financed by the lender, reducing the risk of the loan.


Businesses

There are a few variables that will dictate whether a deposit will be required by the lender. The major reasons why a deposit will be required is the total cost and the type of asset(s) you are purchasing. There is no hard and fast rule, however, for asset purchases above $100,000 there is a good chance the lender may ask for a deposit. If the business Director is NOT a home owner, this may increase the likelihood of the Lender asking for a deposit to be paid.


Start Ups

If your business is a Start Up, accessing finance can mean all the difference in the success of your new venture. It is likely that a Lender will require a deposit if your business has been trading for less than 12 months.


Individuals

If you are an individual looking a purchasing a new vehicle, the value of the vehicle will play a major role in determining whether a deposit is required. If the purchase price is above $50,000 and you are not a home owner, a deposit may be required.


Conclusion

We do hope this information helps better your understanding on the function of a deposit and when a deposit will be required. To summarise, deposits lead to saving money in the loan term as you are paying interest on a lesser amount and deposits assist with your overall 'approvability' as it decreases the risk on the Lenders behalf. If you want to discuss your individual situation, feel free to book in a time with one of our lender specialists.