Initial rental explained

So, you’ve just agreed to a new car lease and are eager to get going.

Now you may be wondering what is the initial rental on leasing your new vehicle? And, do you get this back as a deposit at the end of your lease?

In this short guide, we’ll cover everything to do with the initial rental and leasing payment and answer some of these common questions.

What is an Initial rental payment?

So, what is the initial payment on a car lease, and how is it calculated?

If you opt for a Personal Contract Hire, you’ll be asked to pay an initial payment, which is a one-time payment calculated as a multiple of the agreed monthly rental fee. Typically you can choose a multiple of 3, 6, 9 or 12 times the monthly amount to pay off.

The initial payment is then taken off the total cost of the lease offer. Whatever amount remains is then divided equally into monthly payments until when the contract ends.

How do I work out my Initial rental ?

Here’s an example:

Let’s say you’ve got a lease deal of £10 000 over three years.

First, you need to decide how much money you want to pay upfront. Doing so will reduce your monthly payments. As mentioned before, most lease providers offer common multiples as options for this - 3, 6, 9 or 12 x the monthly amount.

Let’s say you decide to go with nine months upfront. The rental provider will refer to this as 9 + 35, or 9 months and then 35 payments of your new monthly fee.

To work everything out, you simply take your £10 000 and divide it by 44 (9 + 35). That gives you your monthly payment of £227.27. To get your upfront rental payment, times that new monthly price (£227.27) by 9. That gives you an initial rental payment of £2045.45.

Is it better to pay more upfront?

The short answer to that is, it doesn’t really matter. Though the more you pay upfront, the lower your monthly rentals payments will be. Whether you decide to make a smaller or larger upfront payment, however, the total cost for the lease deal remains the same.

It’s up to you how much you choose to pay upfront depending on what works best.

How do I pay my Initial rental ?

The initial payment is always paid to the finance company. Direct debits and bank transfers are often preferred, and sometimes the only methods allowed to comply with anti-fraud regulations.

Some companies may let you pay by credit or debit, though most prefer payment in advance of delivering the car. Cash is never accepted as a payment method.

If you need further assistance on how to pay, don’t hesitate to reach out to the Rivervale team.

Is an Initial rental a deposit?

While an initial payment might seem similar to a deposit, it’s not the same thing. The initial rental payment goes toward paying off your full lease agreement. As such, it’s non-refundable when the contract ends.

Do I get my Initial rental back?

As we’ve just touched upon, the initial rental payment is not refunded given that it is a payment off the total lease cost and not a deposit.

When changing lease cars, do I pay again?

If your lease is up and you want to change vehicles and start a new lease, then you’ll be starting a new lease agreement, which you’ll need to pay upfront for again.

Will the Initial rental be affected by a maintenance package ?

While standard lease agreements don’t cover servicing and maintenance costs, such as tyre replacements, you can add a maintenance package to your agreement. The package is added to the total cost of your package, and the additional cost will be included when calculating the initial rental. This means that a maintenance package will cause both the initial rental and monthly rental to go up.

Can a business claim back the Initial rental ?

Yes, if it’s a business lease, then you can claim back 50% of the initial payment and as well as the monthly payments. HMRC assumes that you are using the vehicle for business 50% of the time while the other 50% is spent on personal use.

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