Car leasing: how it can give you the lowest upfront payments

The larger the deposit, the smaller the monthly payments when financing a new car. Since most people can’t afford to put down thousands, however, financing a new car is a balancing act between paying less upfront and less per month.

While you may have to stick to minimum deposit rules in the showroom – or even put down as much as a 50% deposit to get interest-free credit on a PCP finance deal, for instance – leasing typically lets you put down as little as one monthly payment. This means that you don’t have to save up for months or borrow money for the initial payment to put a new car on the drive.

Car leasing: low initial payment prevents the need for unsecured credit

Unlike PCP finance contracts – where a minimum deposit is specified in many cases – the fact that you can put down a low initial payment with leasing removes the need for many drivers to take out an unsecured loan to pay that first bill.

Considering that 22% of drivers with financed or leased cars used unsecured credit to pay the deposit on their current finance deal – according to a 2018 Mintel car finance report – this means that opting for leasing could help motorists to better manage their borrowing.

Though PCP finance may encourage drivers towards going for a larger deposit to reduce monthly payments and ensure sufficient ‘equity’ when you return the car at the end of the contract, most leasing companies give you free rein to decide how much to pay upfront.

Leasing monthly payments can be lower than PCP due to no need for ‘equity’

Another benefit of leasing, is that the best deals not only come with low initial payments, but very affordable monthly payments. One key reason why leasing can be much cheaper than PCP finance is that PCP is typically set up to leave you with ‘equity’ when you hand the car back and go into another contract.

What this means is that manufacturers effectively artificially inflate PCP monthly payments so that by the end of the contract the car should be worth more than the remaining amount owed – making it more affordable for you to step straight into another new car.

If, for instance, the car is worth £10,000 but the remaining balance is just £9,000, the extra £1,000 can be put towards the deposit on your next car – reducing the monthly payments. Hand the car back and walk away, however, and you lose out on any equity accrued.

In contrast, leasing is set up so that you simply run the car for a couple of years, hand it back and move to a new contract. With no prepaid ‘equity’ increasing the monthly payments, leasing will typically give you lower monthly payments than PCP finance (with like-for-like contract terms).

Leasing can be as simple as an admin fee and 24 equal payments

Helping to simplify the process of getting a new car, leasing can be as easy as effectively paying an admin fee, in most cases, followed by 24, 36 or 48 equal monthly payments. With no choice to buy the car or issues over equity, you simply hand the car back at the end of the contract and can sign up for a new lease afterwards or walk away.

This format is likely to appeal to those coming out of company car schemes or at the end of an existing lease, where it’s valuable to have a series of equal monthly payments with an affordable initial payment – as they may not have a chunk of money to plough into a large upfront cost.

Bear in mind, though, that some leasing companies specify three-, six-, nine- or 12-month initial payments, while others charge higher or lower administration or processing fees. To understand which is the best option for you, it’s worth getting quotes for several cars and comparing quotes to see which best suits your needs.

Make sure the options you compare feature identical contract terms, or at least as similar as you can get them – initial payment, mileage allowance, contract length and car model – to be certain you’re making a fair comparison.