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What does initial payment mean on car lease

Initial payment or initial rental is the upfront payment you make when leasing a vehicle. Learn how initial payments affect your monthly leasing costs and how much you could choose to pay upfront.

Nimisha Jain

Words by: Nimisha Jain

Published on 21 March 2024 | 0 min read

If you’re thinking about leasing a car, you may have come across the term ‘initial payment’, ‘initial rental’, or an ‘upfront payment’. All these terms mean the same thing.
In our guide, we answer common questions about initial payments, from what "initial payment" means to the advantages and disadvantages of paying more upfront.

What does initial payment mean when leasing a car?

The initial payment is a one-off payment made at the beginning of your leasing contract.
After paying the initial rental, you pay the monthly instalments for the rest of your leasing contract length.

What is the difference between an initial payment and a deposit?

Lots of people confuse initial payment for a deposit, but there’s a slight difference between the two:
• An initial payment goes toward the total cost of leasing the car. The initial payment reduces the overall hire cost of the vehicle. • On the other hand, a deposit is typically taken when making a purchase. It can be used as a reservation fee before purchasing goods or services.

How much is the initial payment on a lease deal?

Many companies offer you the flexibility to choose how much you’d like to pay as the initial deposit. Keep in mind that certain leasing deals or company’s terms and conditions may require a minimum initial payment, so it’s best to check with the leasing company first.
The initial payment is calculated as multiples of the lease deal’s monthly payments. Usually, you can usually choose to pay one, three, six, nine, or 12-months’ payment upfront as the initial payment. The initial payment affects your monthly payments, so it's good to think about how much you want to pay upfront. If you make a bigger initial payment, the monthly costs go down and vice versa. For example, the image below illustrates how much your monthly payments would be if you leased the same car with different initial payments. If you made an initial payment worth one month, you would pay £235.86 per month versus paying £161.73 per month when you make an initial payment equal to 12 monthly payments.

What are the benefits of a higher initial payment?

In certain situations, making a higher initial payment can be more beneficial:

Leasing with a bad credit

When you apply for a lease deal, the funder checks your eligibility and affordability by running a credit check against you. If you’ve made all your bills and any debt payments on time and have maintained a good credit profile, then you’re likely to be eligible for the lease deal. After checking your eligibility, the company will check your affordability based on factors such as how much disposable income you have. Making a higher initial payment can help lower the rental costs which may help improve your chance of passing an affordability assessment. However, if your disposable income is lower than the cost of the monthly repayments, then your chances of meeting the requirements of the affordability assessment will be negatively impacted. Please note, if you plan to pay a higher initial rental up front to lower your regular monthly rentals, you will often be asked to show proof of the funds for this initial amount. Learn more about leasing a car with bad credit, and how affordability affects your chances of leasing a car.

Lower monthly and overall cost of leasing the car

Your initial payment amount affects both, your monthly payments, and the total cost of leasing a car. By paying more upfront, you can lower the rest of your monthly payments as you’ve made a bigger initial payment. This is helpful if you prefer making a one-off big payment, followed by a smaller payment going out of your bank account monthly. Let's look at the example below: • If you pay £235.86 upfront, your monthly payment is £235.86, and the total leasing cost is £5,896.50 • In contrast, if you make a £1,940.76 initial payment, your monthly payment decreases to £161.73, and the total leasing cost becomes £5,822.28 By paying more upfront, you pay £74.13 less per month and overall save £74.22 over the course of the lease deal, so if you’re looking to save as much as possible, paying more upfront can help you do so. Please note: this example does not include the cost of any additional extras or any fees you may be subject to such as excess mileage fees or repair costs which will be applicable on top of the total lease deal cost.

Can I lease a car with low or no initial deposit?

On Auto Trader, you can choose to pay as little as one month’s initial deposit on many lease deals. This is equivalent to simply paying the monthly payment as the initial payment. So if you prefer making a smaller payment upfront when leasing a car, you should contact the lease deal provider first and ask if you can do so or not.
You can generally choose how much you want to pay as the initial deposit – usually between 1/3/6/9/12 months’ initial deposit. If you prefer spreading out the cost of your leased car, choosing a lower initial payment can help you do so. However, it's important to note that opting for a lower initial payment will result in higher monthly payments for your car lease deal.

When is the first payment due when leasing a car?

Typically, you make the first payment within 7-10 days after receiving the vehicle. The first payment is the initial payment you decide to make on your leased car.
Usually, the payment is made automatically from the direct debit you set up. If not, the funder might reach out to guide you through the payment process. After the first payment is made, you’ll be asked for the monthly payment every calendar month till the end of the leasing contract. As Auto Trader is a broker, we do not handle your payments directly. As a regulated broker, we work with a carefully selected group of funding partners to find you the best lease deal, so our partners are responsible for handling the payments for the lease deal. However, if you have any further questions, feel free to contact us, and one of our leasing experts will assist you further. Now that you know how initial payment on a car lease works, browse through car lease deals on Auto Trader, and choose the initial and monthly payments that suit you best.