Do I have to pay a big deposit when I lease a new car?
Firstly, thank you for the pictures of this brand-new BMW 3 Series from our St Helens (Merseyside) based personal leasing customer. A very impressive vehicle, which they absolutely loved.
Do I have to pay a big deposit when I lease a new car? One of the big questions new customers raise to most of us in the new car industry pertains to deposits/initial rental/initial payments.
While a good question, it is important to dissect this and understand what the customer is really asking us. To be clear, contract hire (and leasing) is a usership-style finance product.
This means that you use and return the vehicle; it is not a product where you own the vehicle or buy it at the end. Some customers can confuse a contract hire against a PCP agreement.
With a PCP you have the end value (guaranteed future value/balloon) which you can satisfy in order to take ownership of the vehicle.
Again, unlike other products which are available when you are purchasing a new car, large deposits do not make the overall cost cheaper for contract hire.
With some products, by paying more upfront, you reduce the amount of money being borrowed and the amount of interest being paid. In this instance, it can be a more financially beneficial way to proceed.
Car Leasing Terms Explored
With contact hire you will see that we don’t use the words deposits or payments. Why you ask? The deposit infers that this is something you will get back at the contact end date.
You don’t. To our knowledge, there is really no product which allows the deposit to be returned with exception of short-term car hire.
This seems to be one of those myths and notions which float around the car industry. The reason we avoid the term “payment” is that this tends to suggest there is some form of ownership.
With contract hire/leasing you are using the car for 2-4 years and organising this to be returned. In effect, this is the best way to run and operate a new vehicle.
However, if ownership is key to you, this is not the way to proceed. What you will see in our quotes and on our website we always use the term initial rental.
The initial rental is the amount you pay in month 1 of the contract. For example a 6 spread initial rental on a £300 per month car, would mean that month 1 would require a £1800 initial rental followed by the £300 per month rentals for the duration of the contract.
If this was a 3 year contact, you will see it as 6 + 35, as you are effective paying 41 rentals worth during the 36 month contract. So does it make it cheaper to do a big initial rental? In short, no.
With contract hire, because interest plays such a nominal role, the amount of money you pay in month 1 is only effectively adjusting your monthly rentals for a cash flow perspective.
Whether you do a 1 + 35 (no deposit/no initial rental) or 9 + 35 on a vehicle, the overall cost of the agreement will pretty much be the same.
In effect you have two choices – pay less “upfront” and more per month or more “upfront” and less per month. Again, the overall cost of using the vehicle for the 36 month period will be almost identical.
For company car drivers who receive an allowance or for businesses who operate large fleets, having a no initial rental agreement makes sense as a cash-flow positive arrangements.
Noted, there may be instances where companies want to reduce their corporation tax bill and they will try to put large initial rentals in month 1 to offset their tax for the relevant year but in most cases a long-term cash-flow efficient strategy is often the way to go.
For some individuals, there is a requirement for a low-deposit arrangement because they either have 1) poor credit; or 2) insufficient funds. In both instances this does create concern for us as your credit broker.
What we do is credit-based but it is also income and expenditure based i.e. ability to pay and likelihood to pay. If you approach us looking for a new car and there is an inference you are struggling to make a payment/rental, then we cannot assist you.
At the centre of what we do as a business is treating customers fairly (TCF). This means offering you products and services which are suitable to long-term need and requirements.
If you approach us in month 1 with credit or affordability issues, it is not possible to arrange a 2/3/4 year contract with this in mind – what if your situation gets worse? What contingencies do you have in place? How is COVID affecting your ability to pay?
If you are looking to use no-deposit leasing product because of low income, you need to look elsewhere. Our industry is simply not suitable for you. Additionally, run an Experian report to ascertain your credit.
Again, low credit scores are not suitable for leasing a new car. If you looking at this because of cash-flow or practical reasons, then it is more than possible. Just ask one of the CarLease UK team for a no initial rental quotation!
Our Latest BMW Personal Car Lease Delivery
In terms of the car shown, the BMW 3 Series Saloon 320i M Sport 4dr Step Auto (Petrol), this is based on the following configuration:
- Black Sapphire -Metallic Paint
- Vernasca leather – Black with grey stitching
- Mesh effect aluminium interior trim
- 18″ NON-RFT M double spoke bicolour orbit grey light alloy wheels – Style 790M including BMW mobility kit
- Sun Protection Glass
As standard the car includes leather upholstery, adaptive LED headlights, parking assistant pack, Bluetooth, cruise control, acoustic glazing.
Rain sensing wipers, DTC, hill start assist, M Sports suspicion, BWM live cockpit with 12.3” display, electrically folding mirrors, interior mirror with anti-dazzle, DAB radio, body coloured externals.
Matt black exterior, LED daytime running lights,. LED fog lights, welcome lights, air conditioning, multifunction steer wheel, connected pack professional.
Aerodynamics pack, 40/20 split folding seats, start/stop button with comfort go, gearshift paddles, heated front seats and 18” alloys, In terms of additional extras – consider upgrading to one of the Packs (Tech/Pro) or add sun protection glass for a complete finish.
On the technical-side company car and business users can note the P11d at £35,749.99 for a standard vehicle and CO2 at 146g/km (WLTP).
The 1998CC 8 speed petrol engine delivers 50.4 combined MPG, 184ps and 0-62 times of 7 seconds. The service intervals on a petrol 3 series are every 2 years or 18,000 miles, whichever lands sooner.