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What is an Initial Rental for Car Leasing?

What is an Initial Rental for Car Leasing?

(Posted on 12/09/24)

As car leasing in the UK has become an increasingly popular option for both personal and business users as living costs increase, as leasing allows you to enjoy a brand-new vehicle without the high upfront cost associated with purchasing a car.

Consequently, one of the questions we get asked frequently is what the "initial lease rental" is - also known as an "initial payment."

As a result, we have put together this handy guide to cover what this means to you if you are considering leasing a brand-new vehicle, as it is essential for you to understand this concept and how it affects your lease contract.

Table of Contents

So What is Car Leasing?

First, let's set what car leasing actually is. Car leasing is a type of car finance agreement where you essentially "rent" a car for a set period, typically between 24 and 48 months.

Here, instead of paying the full price of the vehicle, you make an initial rental payment followed by fixed monthly instalments; then, at the end of the contract term, the car is returned back to the finance provider - leaving you with the option to either lease another vehicle or end the arrangement entirely.

Tesla model 3 leases

Leasing Does Not Lead to Ownership

Unlike buying a car on finance, car leasing does not lead to the ownership of the vehicle.

You are simply paying for the right to use the car during the lease term instead. Consequently, this makes it a very flexible option for many people, especially those who want to avoid the depreciation associated with owning a brand-new vehicle and would prefer to drive a brand-new car every few years.

So, What is an Initial Rental Payment?

An initial rental payment is the upfront amount you pay when you sign a vehicle leasing contract.

This upfront payment is then part of the total cost of the lease and is typically calculated as a multiple of the monthly rental payment and is made before your first payment is.

For instance, it is not a down payment, and you do not get it back at the end of the contract.

However, the larger the initial rental you make, the lower your monthly lease payments will be throughout the term of the contract as a result.

Customisable

When leasing a car, you can choose how many months’ worth of payments you want to put down upfront - this commonly ranges from 1 to 12 months.

This flexibility then allows you to customise your lease contract to fit your exact financial situation and monthly budget.

Subsequent Monthly Payments

Here, the higher the initial payment you make, the smaller the subsequent monthly payments will be, and vice versa.

All while, the total cost of the lease remains more or less the same. So, whether you opt for a higher initial rental or spread the cost evenly across your monthly instalments, the choice is entirely yours.

What’s the Benefit of Paying a Larger Initial Rental?

Paying a larger initial rental will lower your monthly payments throughout the lease term.

This can then make your budgeting much easier, all while reducing your overall financial commitment over the course of your new lease car contract as you do so.

Initial Rental vs. Deposit - How Do They Differ?

Here, we would be a miss if we did not clarify that an initial rental is not a deposit.

With many types of vehicle finance options, a deposit is often refundable at the end of the contract, but in leasing, this isn't the case.

This is because the initial rental is part of the overall leasing cost, and you won’t receive this money back when the lease term ends as a result.

How Does the Initial Rental In Regards to Car Leasing Work?

Once you have decided on your lease vehicle, you will agree on the terms with the leasing company, including the initial rental amount, which makes up part of the total leasing fees in your contract.

The cost of the lease is then spread over the contract length, which can vary based on many factors, such as the vehicle type, the length of the contract you want to take out, and your annual mileage allowance, to name a couple.

Land Rover Sport leases

Example

Here’s an example. Suppose you choose to lease a Vauxhall Corsa car for 24 months with a monthly payment of £250.

If you then opt for an initial rental of 6 months, your upfront payment would be £ 1,500 (£ 250 x 6), plus a small one-off processing fee.

You would then make 23 regular monthly payments of £250 until the end of the contract.

For this type of contract, you may see a breakdown like 6+23 in the leasing agreement, which will then symbolise this.

Then, if you have included maintenance in your contract, things such as your service costs will be covered; if not, the cost of the servicing will be additional along with other bits such as road tax, for instance.

How the Initial Rental is Paid

The initial rental is typically paid directly to the finance company through a direct debit or bank transfer.

We should note that most companies do not allow the use of a credit card for this payment as well and would require this to be made more from a bank account or Debit card.

As a result, the timing of the payment can vary. For instance, by:

Before Delivery Date

Some finance companies will require payment before they confirm a delivery date for your lease vehicle.

Before Delivery

Others will give you a delivery date, but expect the payment before they release the car.

After Delivery

In some cases, the initial rental is taken 7-10 days after the vehicle has been delivered to you.

Regardless of the payment method, it really is key to know when your upfront payment is due to avoid any delays or issues with your delivery date.

Monthly Lease Payments

Once the initial rental is the paid paid, your monthly lease payments will begin.

These payments are set in stone for the lease term, providing you with peace of mind that your costs won't change during the agreement.

Monthly lease payments here are also calculated based on factors like the vehicle’s depreciation, the contract length, and the annual mileage allowance, to name a couple.

If you then exceed the agreed mileage limit, you may be subject to an excess mileage charge, which can increase the overall cost of your lease, so please make sure you consider how many miles you will be doing before starting the lease to get the best car lease deals for you. Our team is also here to help if you are unsure how to work this out.

How Does My Credit Score Affect My Initial Rental?

Your credit score and credit history play a role in how much you will pay for your initial rental.

After a credit check and completing some paperwork, you will sign your lease contract, which authorises your initial rental payment to be sent to the finance company that owns the leased car.

The total cost of leasing a car can also depend on several things, such as your credit score, the interest rate on the lease, the length of your contract, the type of car you choose, and if you’ve included a maintenance package as well for example.

What Happens at the End of the Lease?

At the end of your lease, you will return the car to the finance company.

At this stage, you are not required to pay a lump sum or balloon payment, as you would in other forms of car finance.

However, it’s essential to ensure the car is in good condition, accounting for fair wear and tear, as stipulated in your lease contract.

If there’s damage beyond the acceptable level, you may incur additional charges here to put them right.

Continue Leasing

For those who want to continue leasing, you can quickly begin a new lease contract, often with special offers or incentives from leasing brokers.

So, whether you need a brand-new vehicle, an electric car, or van leasing for your business, there are always new car leasing deals available to fit your exact needs.

BMW I5 leases

Advantages of Car Leasing

Car leasing options give you several benefits, particularly for those looking to drive a new car without the hefty upfront cost or the hassle of selling a depreciating asset.

Some of these advantages, for instance, include:

Fixed Monthly Payments

The certainty of regular monthly payments makes it easier to manage your monthly budget.

No Ownership Responsibilities

At the end of the lease, you simply return the car, avoiding the worries of depreciation.

Lower Monthly Payments

Compared to other forms of vehicle finance, leasing typically offers lower monthly payments for a brand-new vehicle.

Optional Maintenance Packages

Leasing deals can also have maintenance packages added on as part of the deal, covering costs such as servicing and repairs - giving you peace of mind during your lease as well.

Access to the Latest Models

Leasing allows you to drive the latest models, including electric cars, with the newest technology and features.

Business Leasing, Personal Leasing and the Initial Lease Rental

Both individual and business leases can benefit from vehicle leasing.

Personal Contract Hire (PCH), for instance, is the most common form of leasing for individuals, while businesses often take advantage of Business Contract Hire (BCH).

Here, business leasing deals often come with tax advantages, making them an attractive option for companies looking to manage vehicle expenses.

However, when it comes to the initial rental amount for business owners, this can be claimed back as a business expense as well.

What is an Initial Lease Rental Final Thoughts?

As you can see, understanding what an initial rental is and how it affects your car leasing contract is really key to making an informed decision.

So, whether you choose to pay 1, 3, 6, 9, or 12 months upfront, your choice will influence your monthly lease payments, but it won’t change the overall cost of the lease.

Consequently, leasing a vehicle can be a cost-effective solution for both personal car leasing and business use, as it gives you access to the latest vehicles, all without the commitment of ownership while you do so.

We have put together another article to be your guide to this landscape, that if you like this one, you may also want to consider such as for instance:

Contact Us

If you need more information on car leasing or your initial lease rental and what they will mean for you, Contact our team and we will be happy to help you.

Who Are We at FleetSauce?

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At FleetSauce, we have a dedicated team of leasing experts and customer service professionals based in Wrexham, Wales, specialising in van leasing and car leasing.

As a result, our team constantly reviews the electric vehicle market to bring you the best prices, and we manage significant business leasing contracts and fleet solutions.

We are also proud to offer you excellent customer service — just take a look at our customer reviews.

We also adhere to a strict complaints procedure to ensure any issues are resolved promptly and fairly, and we are a credit broker, authorised and regulated by the Financial Conduct Authority (FCA) - registration number 676763 - as well as a member of the British Vehicle Rental and Leasing Association (BVRLA).

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