Leasing without an Upfront Payment

Car leasing offers you unrivalled flexibility and convenience. With a lease, you can always drive the latest cars featuring the latest technology without having to commit to a specific car in the long term.

In other words: if you’ve had enough of your old car by the end of the lease, just lease another one.

What’s more, leasing gives you greater financial flexibility than if you were to invest your money in a car.An important consideration when leasing a car is whether you want to make a down payment. This decision has a huge impact on the financial structure of your lease.

In this article, Gowago gives you an overview of the key points to consider regarding the down payment. We’ll cover the pros and cons of leasing with and without a down payment and help you make the best decision for your financial situation.

By the end of this article, you’ll know whether or not you want to make a down payment.
Let’s Go.

What is a down payment?

A down payment, also known as an upfront payment or initial payment, is a lump sum paid at the start of a car lease agreement. Its primary purpose is to reduce the total amount to be financed through the lease, which in turn leads to lower monthly payments and potential savings on interest costs over the course of the lease.

Your leasing, your decision.

With Gowago, you don't have to make a down payment in most cases. Therefore, the decision is fully yours: drive with lower monthly rates or keep your savings free for investments etc.
Leasing, the way you want it. Gowago.
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Leasing with a down payment

Advantages of leasing with a down payment:

In short: You pay less per month. You have a better chance of being accepted for leasing. And you may have a wider choice of cars - as certain, especially more expensive, offers often require a down payment.

1. Lower monthly leasing instalments:

The monthly leasing instalment (together with the residual value, interest rate and other fees) is determined by the total amount financed by the bank. This amount is the purchase price of the car minus the residual value of the car at the end of the lease.

A down payment reduces this total financing amount. This directly means lower monthly instalments. This makes your leasing contract more affordable on a monthly basis and allows you as the lessee to better manage your monthly budget.

For example: Let's assume the total price of a car is CHF 30,000 and the residual value at the end of the four-year leasing period is CHF 15,000. If the customer then makes a down payment of CHF 5,000, the total financing amount is CHF 10,000. So you effectively have to finance less money through monthly instalments. The monthly instalments are therefore lower.

2. Lower interest costs

With almost every lease, the monthly instalment is charged with interest. For new cars there are sometimes very low interest rates, for used cars rather higher interest rates. The interest rate is applied to the entire financing amount - you need to be aware of this.

So if you make a down payment, which reduces the financing amount, you will pay less interest costs overall when leasing. With a larger down payment on a lease with high interest rates, you can sometimes save a few thousand francs. However, if you lease a cheap car with less than 4% interest, you will save less. And with a 0% lease, a down payment makes no sense in this respect.

3. Increased chances of leasing:

A down payment provides a financial safety cushion. Because if the monthly instalments are lower, the monthly burden on your budget is less substantial. After all, you have ‘pre-financed’ part of the lease. A bank or leasing company likes that. With a down payment, the financing provider may be more willing to approve the leasing contract if you have a rather tight budget.

If your credit rating is borderline and your income is too low, you may not be approved for a lease without a down payment. With a down payment, however, it is possible because the monthly instalments are now within your budget and the risk of over-indebtedness is much lower.

Another possibility is that you might want to lease a more expensive car. Even then, a down payment will help to reduce the monthly instalments. Your monthly budget will be less burdened and the bank will see less potential for financial problems.

4. More vehicles available

Some leasing companies or banks require a down payment for certain vehicles, especially more expensive ones. This ensures that both parties are financially secure. For you, however, this means that if you are prepared to pay a slightly higher down payment, you will have a wider choice of cars, especially in the luxury segment.

Disadvantages of leasing with a down payment:

In short: You have less free capital. In the event of a total loss or theft, the down payment may be gone. And don't confuse a down payment with a down payment - you won't get the amount back at the end of the lease.

1. Tying up your capital:

With a down payment, you as the lessee tie up part of your saved capital in the car. This makes you less liquid and gives you less financial flexibility.

This is actually a contradiction in terms with leasing.
After all, one of the main advantages of leasing is that you have your capital available for other purposes, such as investing in shares, buying a property or simply as a long-term hedge. So you miss out on the opportunity to make your money work for you.

The fact that you can't reclaim the down payment or apply it to the next car is particularly challenging if you have limited financial resources and leasing is the easiest way for you to have a car. Because after four years, you may not have built up your financial cushion again.

2. No refund:

It's the horror scenario: you drive off in your new car, but after a short time it's all over. An accident that is not your fault and was simply bad luck. Fortunately, you are uninjured - but the car is not. A total loss.

The damage is covered by the insurance. You don't have to pay anything extra. But your down payment? Depending on how long the lease has been running, you may only get part of it back or even go away empty-handed. If you had paid a down payment of CHF 10,000 or CHF 20,000, the loss really hurts.

3. No repayment:

We've heard it before: ‘When will I get my down payment back?’

The question stems from a misunderstanding. A down payment for leasing does not work like a refundable down payment when renting a flat. So you don't get the money back at the end of the leasing term.

A down payment only serves to reduce the monthly payments and interest costs during the leasing period. It really should not be confused with other forms of down payments, such as down payments for rental properties.

Extra: Interest costs vs. capital return on your savings

The really clever know: Money can work for you - you just have to put it to the right use. Should you invest your money now in a fund/ETF or in the down payment on your lease car? Compare the interest on your lease with the potential returns on an investment in shares or funds.

If your lease has higher interest rates than the fund or ETF you want to invest in, then it makes sense to make a down payment - this will save you interest costs.

However, if your lease has very low interest rates, you may have a better chance of earning a return with a fund and an ETF.

You need to work out exactly what makes sense in your case - preferably with the help of your bank advisor. We can warmly recommend Migros Bank for this.

The price you see is the price you get.

How digital leasing works at Gowago. No hidden costs. No surprises. Simply clear prices calculated immediately. So you know right from the start how much your car will cost you.

That's transparency. Let's Go.

Leasing without down payment

Advantages of leasing without a down payment:

In short: With no down payment, you're freer - you keep your savings and can invest them or use them elsewhere. And you don't have to make a huge payment at the start of the lease.

1. Capital preservation:

The biggest advantage of leasing without a down payment is that you can keep your hard-saved capital and don't have to spend it all on your car at once. With a leasing contract, you avoid considerable up-front costs.
This gives you more financial flexibility and independence, because you can do what you want with your capital.

• Invest in shares, funds, ETFs or pillar 3a: Instead of tying up your money in your car, you can make it work for you. This makes even more sense if the interest/return on your investment is higher than the interest costs of leasing. With pillar 3a, you must also bear in mind that you can even deduct it from your taxes - this is not possible with leasing interest.

• Buying a property: For example, let's say you want to buy a house in a few years, but you need a new car now. Then leasing without a down payment is practical: you have the car AND your savings for the house remain. So you've got the ‘Fünfer und das Weggli’, as we say in Swiss German.

• You want to go travelling soon: Then the shorter terms of leasing give you the flexibility to simply return your car before you start your trip.
  And if you don't make a down payment, you won't limit your travel budget.

In all these cases, leasing makes sense because you only have to pay the monthly instalments. If you then make a substantial down payment, you cancel out this advantage.

So save the down payment or keep it as low as possible if you want to use your capital flexibly.

2. Easy start of the leasing contract:

Without a down payment, the first leasing payment is simply the first, usual, monthly payment - just like during the rest of the term of the leasing contract.
So you don't have to pay a large sum all at once.

You have to pay the down payment in one invoice - together with the first leasing instalment. Depending on the down payment, this can be a bill of several thousand francs. And it doesn't matter whether you've chosen this option or what your income is: Paying a big bill just always hurts somehow.

Disadvantages of leasing without a down payment:

In short: Without a down payment, the monthly instalments are higher. And for certain cars, a down payment is mandatory.

1. Higher monthly instalments:

Leasing without a down payment means that the total amount to be financed is higher. The bank finances the entire difference between the purchase price of the car and the residual value. The bottom line is that this means higher monthly instalments, your monthly budget is charged more and you pay higher interest costs over the entire leasing term.

We'll show you an example of how much this can actually amount to.

Let's say you want to get this sexy, grey Audi A1 Sportback. The higher your down payment, the lower your monthly instalment:

• The purchase price is CHF 37,750.
• The residual value is CHF 15'406.
• Leasing parameters: 48 months, 10'000km/year, 3.99% interest.
• No down payment: CHF 554 / month
• CHF 1500 down payment: CHF 520 / month
• CHF 3000 down payment: CHF 486 / month
• CHF 6000 down payment: CHF 419 / month

It's hard to believe, but the down payment has a huge impact on your monthly costs, especially for a car with a lower purchase price. So if you have little savings, or don't want to spend your savings on a car, then it's a good idea to keep the down payment as low as possible. However, if you prefer to optimise your monthly budget, you should make a down payment.

2. Possibly a condition:

In some cases, especially with more expensive cars, a down payment may be required even if the lessee's financial situation is stable. A lessee wishing to lease a luxury car worth more than CHF 100,000 with Gowago must make a down payment of at least 20% - this reduces the financial risk and the monthly burden on the budget.

Are you still unsure whether you should make a down payment?

Choose a car you like and play through the different scenarios with our leasing calculator.

If you're still not sure, either contact our advisory team or simply start a no-obligation leasing application. We will then contact you and advise you on the leasing term, kilometre package and down payment. Because we want your leasing to fit your life. Let's Go.

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Conclusion: Should you make a down payment?

Leasing a car with or without a down payment is an important decision. This is because a down payment leads to a significant change in the structure of the leasing contract and your financial flexibility as a lessee.

• Leasing with a down payment offers immediate advantages: Lower monthly instalments, lower interest costs and better chances of being accepted for leasing, especially for expensive cars. But at the same time, you tie up part of your capital in the car. This means you have less financial flexibility. In addition, a down payment also represents a risk of loss. If the car is totalled, you won't get it back.

• Leasing without a down payment, on the other hand, gives you the chance to keep your saved capital and use it for other purposes (buying a house, a big holiday, investing in shares, etc.). Also, you won't have to pay a massive bill at the start of the lease, but simply start paying the monthly instalments. However, these monthly instalments will be higher because the financing amount is higher.

Ultimately, the decision between leasing with or without a down payment depends on your financial situation, your goals, preferences and your life. So it's up to you - you need to weigh up the pros and cons of a down payment.

However, we recommend that you never make a down payment of more than 15% of the car if you don't need to, so you can find the perfect balance between lower instalments and less capital tied up.

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