When you lease a car you have to pay an initial payment. This is essentially a deposit that you put down at the start of the contract. This can also be referred to as the down payment.
The down payment of a lease car historically used to be a number of monthly payments. This could be anything from 1 to 12 monthly payments. However, in recent years this has changed to a cash amount of £1,000, £2,000 or even £20,000 depending on the vehicle. However, how much you put down is up to you, but more on that later.
So, what is the initial payment? And, when do you have to pay it?
We get asked about this a lot at OSV and it’s understandable, you want to know exactly where your money is going. So in this article we’re going to explain what an initial payment is, how it’s calculated, and when you need to pay it.
What is an initial payment?
Your initial payment is essentially your deposit. As with thing such as mortgages, you pay a larger sum at the start of the contract to make your monthly payments lower. The total cost of the contract will be the same, but the more you put down in the initial payment the less you pay monthly. It should be noted that it’s technically not a payment, it’s a rental. This is because on a lease, you don’t have ownership. However, most people call it a payment and so that’s how we’ll refer to it in this article.
How is the cost of the initial payment calculated?
The amount you pay as a down payment is usually up to you. You and your salesperson will discuss your budget and how much you have to put down as an initial payment. Your monthly budget can affect how much you put down as an initial payment. So, if you want to spend less monthly on your car, you can look at putting down a higher initial payment. Or, if you are happy paying that little bit extra each month then you can go for a lower down payment. But essentially, it’s down to what you would prefer.
Sometimes, however, there are exceptions. Some finance houses stipulate that you have to put down a certain amount – whether this be due to your financial circumstances, credit history or the finance houses policy.
The amount you will put down as the initial payment is clearly stated in your order form. This will either be written simply as the amount or as an equivalent to monthly payments. So it could be written 3×25 – so your initial payment is three times your monthly payments.
How can I pay for my initial payment?
Generally, you will make the payment via direct debit. In some circumstances you will be able to do this by bank transfer, or by debit card. You cannot pay by cash.
In some cases, finance houses will stipulate that all payments are made by direct debit or bank transfer. This tends to be due to money laundering and anti-fraud regulations that restrict how much the finance house can take.
I would advise you asking at the point of order because it can vary between finance houses.
When do I have to pay the initial payment?
It depends how you are going to pay for it.
If you are paying by debit card, then you will have to pay before. You won’t be given a delivery date until you make this payment. So, you will get a phone call saying your car is ready for delivery. It will be then that you make the payment and after that payment is made you will arrange for your car to be delivered.
If you are paying by bank transfer or direct debit, then the initial payment will be made after the car has been delivered. This can be any time from a week to ten days after your car has been delivered. However, every funder has its own rules so you should ask your advisor.
What happens if I can’t pay the initial payment?
If you are paying via debit card then your car won’t be booked in for delivery and subsequently won’t get your car.
However, if you are paying by bank transfer or direct debit and you are declined, then this will count as a late payment. If this continues to be declined and you miss the monthly payments then you will go through the debt collection procedure.
Do I get my initial payment back?
The initial payment is non-refundable. The initial payment is simply a way of reducing your monthly rentals or satisfying the requirements of the underwriter. Therefore, you don’t get it back at the end of your contract.
So essentially, your initial payment is the one you make before you get your car. How much this will cost is down to how much you want to put down. You will pay your initial payment either before or after delivery, depending on how you pay for it. And, if you don’t make the payment, then it will be treated as a late payment and if you fail to pay it, you will be subject to the debt collection procedure.
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