Leasing without an Upfront Payment

Leasing a car offers you unparalleled flexibility and convenience. It means you can consistently drive the newest cars with the most recent technology, without having to make a commitment to any one car. Furthermore, with leasing, you remain financially more flexible than when you invest your money into a car.

One significant consideration when leasing a car is whether or not to make a down payment, also known as an upfront or initial payment. This decision can greatly affect the financial structure of the lease. In this article, gives you an overview of the nature of a down payment, the pros and cons of leasing with and without one, and how to make the best decision for your financial situation.

Leasing with a Down Payment

Pros:

1. Lower Monthly Leasing Rates:
   The monthly leasing rate is (together with the residual value, interest rate, and other fees) set by the total financing amount, e.g. which sum of the car’s purchase price is financed through the bank. A down payment reduces this total financing amount, which directly translates into lower monthly payments.
   This makes the lease more affordable on a month-to-month basis, helping lessees manage their budgets more effectively. Let’s say a car's total price is CHF 30,000 and the residual value at the end of 4 years of leasing is CHF 15’000. If the customer then makes a CHF 5,000 down payment, the total financing amount will be CHF 10’000. Hence, the monthly payments are lower.

2. Increased Acceptance Chances:
   Making a down payment provides a financial security cushion, which can make the leasing company or bank more inclined to approve the lease. This is particularly beneficial for those who are on the fringe of qualifying, such as those with borderline credit scores or income levels, or for those looking to lease more expensive vehicles.

3. Required for Some Cars:
   Some leasing companies or banks may mandate a down payment for certain vehicles, particularly more expensive ones. This ensures that both parties are financially protected and that the lease arrangement is taken seriously by the lessee, providing confidence to both the lessee and lessor.

Cons:

1. Capital Binding:
   A down payment binds a portion of the lessee's capital to the car, which can limit their financial flexibility. This contradicts one of the primary advantages of leasing, which is to retain capital for other uses, such as investments. The inability to reclaim or repurpose the down payment can pose challenges, particularly for lessees with limited financial resources.

2. No Reimbursement:
   In the event of total damage to the vehicle, such as in a severe accident that renders the car a complete write-off, the down payment is not reimbursed. This can lead to a loss of money for the lessee.

3. No Return:
   At the end of the lease term, the down payment does not function as a refundable deposit. It serves solely to reduce the monthly payments during the lease period, distinguishing it from other forms of upfront payments, such as security deposits for rental properties.

Leasing without a Down Payment

Pros:

1. Capital Retention:
   The primary benefit of leasing without a down payment is the ability to keep your hard-earned capital intact. You are effectively avoiding any significant upfront costs for the lease. This provides greater financial flexibility and independence, allowing you to use your capital for other investments or expenses.
   For example, if you are planning on buying a house in the near future, it makes more sense to lease without a down payment, so that you can keep your savings to pay for the house. Similarly, you can invest your money into other areas, such as the stock market or building up a business.

2. Simpler Beginning to the Lease:
   Without a down payment, the first lease payment is the same as any of the other payments - it is simply the monthly rate. You will not have to make a massive payment in one go.

Cons:

1. Higher Monthly Rates:
   Leasing without a down payment means the total amount to be financed remains higher, resulting in increased monthly payments. For instance, if a car costs CHF 30,000 and no down payment is made, the monthly payments for a lease will increase, as the amount of money borrowed from the bank is more. This makes the lease more expensive on a month-to-month basis.

2. Possible Requirement:
   In some cases, particularly for more expensive cars, a down payment may still be required, even if the lessee's financial situation is stable. For example, a lessee wanting to lease a luxury car with Gowago worth more than CHF 100,000 will need to make a 20% down payment.

Conclusion:

The decision to lease a car with or without a down payment is a significant one, affecting the financial structure of the lease and the lessee's long-term financial flexibility.

Leasing with a down payment offers immediate benefits, such as lower monthly payments and increased chances of being approved for the lease, particularly for more expensive vehicles. However, it also binds a portion of the lessee's capital to the car, limiting financial flexibility and posing a risk of loss in the event of total damage to the vehicle.

Leasing without a down payment, on the other hand, allows the lessee to retain capital and simplifies financial planning, with consistent monthly payments throughout the lease term. Yet, it leads to higher monthly rates due to the larger amount to be financed and may still require a down payment for certain vehicles.

Ultimately, the choice between leasing with or without a down payment depends on the lessee's financial situation, goals, and preferences. It's recommended to carefully weigh the pros and cons, including the potential risks and benefits, to make an informed decision that aligns with their individual needs and long-term financial goals.

Discover Leasing offers with or without down payments