Initial Payments (aka. Initial Rentals) can look confusing when comparing car leases, short-term car leases and sometimes car subscriptions, so in this guide, we will answer a few of our most asked questions.
What is an initial payment?
We’ve already gone into detail about payment profiles on a previous article (click the link to read) but in a nutshell the initial rental payment is an upfront payment that you make to initate a car lease. This then covers you for the first momth and then you will continue to pay fixed monthly instalments until the end of the lease contract.
The initial rental can be called a few different things depending on the broker or funder and can also be called the down payment.
The amount of the initial payment depends on the amount of money that you are willing to pay, usually this can be the equivilient to 1-months rental or up to 12 months.
The higher the initial rental, the less you pay per month.
Here are a few examples to help you understand:
If you lease a car for 36-months and the monthly payment is £500 per month with the profile advertised showing as a 6+35, you would pay £3000.00 in the first month and then the remaining 35 payments would be £500 per month. This would mean that you would pay a total of £20,500 pver the 3 years for the vehicle.
In this contract, this would be shown as a 6+35 Payment profile because you are paying 6 times the regular payment in the 1st month, you will then be paying a further 35 monthly payments until the contract ends.
You could decide to pay 9 payments upfront, in this case it would be displayed as a 9+35 Payment Profile. You would pay an initial rental of £3681.81 upfront and a further 35 rentals of £409.09 per month. You would still pay £20,500 over the 3 years.
If you took a 12-month car lease which was advertised as a 3+11 and the monthly payment was £250.00 per month, you would pay an initial rental of £750.00 for the first month and then 11 further regular monthly payments of £250 per month. This would mean that you would pay a total of £3,500.00 over the 1 year for the vehicle.
In this 12-month car lease, it would be advertised as a 3+11 payment profile because you are paying 3 times the regular payment in the 1st month, you will then be paying a further 11 monthly payments until the contract ends.
You could decide to pay just 1 payment upfront, in this case it would be advertised as a 1+11 payment profile. You would pay an initial payment of £291.67 and a further 11 regular monthly rentals of £291.67 per month. You would still pay £3,500.00 over the 12 months for the car.
It doesn’t matter how much the initial rental you pay is, the amount over the term will remain the same, it just depends on your personal circumstances and if you are willing to pay more upfront and have a lower payment, or less down and higher monthly payments.
Many businesses like to put a larger initial rental down, especially those who are looking to offload some cash from their accounts before the tax year is over.
Is the initial payment refundable?
No, the initial rental payment isn’t refundable as it covers you for the 1st month.
As explained above the initial payment is simply there to reduce the regular monthly payment amounts of the contract and contributes to the overall cost of the car lease.
When do I need to pay the initial payment?
This will all depend on the type of contract and/or the leasing provider. Usually the initial rental payment is made directly to the leasing company and will need to be paid before taking delivery of the car.
The initial rental can be paid for by credit/debit card or bank transfer (BACS). Cleared funds would be required before delivery takes place unless otherwise specified by the leasing company.
Sometimes the leasing company may take the initial rental payment via Direct Debit, you are usually informed of this before it has been debited from your account.
With short-term car leases and car subscriptions, the initial rental and any processing or documentation fees will be taken at the point of order, this is usually down to the shorter lead times of these services.