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Car leasing with no deposit

  • Leasing requires an initial payment, not a deposit
  • Why it's better to put down some money
  • What's the difference between a PCP and a lease?

Deposits. We're used to paying them when we rent a flat, an industrial carpet cleaner, or of course, a hire car. The deposit is a guarantee that any damage or loss the rental company bears is covered. It's usually refundable when whatever you've rented is returned in the condition it was lent it.

We also use the term deposit when leasing a car. However, a deposit in this instance is not like when you rent a car on holiday. This is because it's non refundable, and it's not linked to the condition of the car on its return at the end of the agreement.

In fact, its proper name is 'initial rental'. It's important to remember that technically with leasing, you don't pay a deposit. We explain all below.


2019 Audi A1 front

What is an initial rental?

An initial rental is an amount of money you must pay upfront as part of a lease deal. You pay it before you receive the car and it's usually a multiple of the monthly payments, typically three but occasionally more.

However, while it may be a multiple of the monthly payments, paying the initial rental doesn't reduce the total number of months that the deal runs for. For example, if the deal is over 36 months, you might pay an initial rental to the value of three months' payments but still have 35 monthly payments to make.

The initial payment will be collected when you order the car and typically paid by bank transfer or a card. If you don't pay it, you don't get your car. The subsequent monthly payments are likely to be taken by direct debit.

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Why it's better to pay an initial rental

Although an initial rental doesn't shorten the length of the lease, it does help to reduce the value of your monthly payments since you are paying back more of the money in one go. In short, the more you pay upfront, the less you pay each month, and vice versa. Remember, though, that unlike some deposit payments, an initial rental is non-refundable.

If you have a bad credit rating, paying the initial rental reduces the amount you have to borrow, meaning the finance company that organises the finance for your car might look more favourably on you.

The difference between PCP and leasing deposits

Businesses have understood the value of leasing for years. Simply, it's a way of financing a portion of the total cost of a car over a fixed term, typically three years, and at the end, handing it back to the leasing company. In that sense, it's like renting except that the company is responsible for servicing, insuring and taxing the car.

The point is, though, that at the end of the term, is returned to the leasing company and a new car organised in its place.

Under the terms of a personal contract purchase (PCP) deal, where like leasing, only a portion of the car's total price is financed, there is no duty to return the car at the end of the term. Instead, the customer has three options: put any equity in the car (the difference between its official forecast value, also called the minimum future guaranteed future value, and its actual trade value which may be higher) towards a replacement, pay the MGFV and keep it, or return it and walk away with, all being well, nothing more to pay.

Where leasing and PCP also differ is that a lease is likely to require an initial rental upfront, as explained above, but a PCP, a deposit.

Regarding a PCP, this deposit is not based on a multiple of the monthly payments that lie ahead but is simply a figure that's likely to be a percentage (usually 10%) of the sum that's being funded – that is, the difference between the car's price and it's minimum guaranteed future value.

In fact, in some cases, the manufacturer also chips in with an additional sum of money called a deposit contribution. This helps to bring down the monthly payments lower still and can also be thought of as a discount.

Also, some PCP deals may only require a token deposit of £99 from the customer or even no deposit at all. This avoids having to find a larger sum of money upfront, but it comes home to roost in the form of higher monthly payments.

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