No Deposit Car Leasing: How It Works

Before we get into the ins and outs of no-deposit car leasing, it’s worth clarifying up front that yes it is possible to lease a car with zero deposit. In fact, it’s fairly common to have a car lease set up in this way.

Not all providers offer no-deposit leasing, but most do as it’s something a lot of individuals and businesses are looking for.

What is no-deposit car leasing?

No-deposit car leasing means you lease a car without needing to make a lump sum payment up-front. Instead the full cost of the lease is spread evenly across the lease term (usually 12-60 months).

For personal contract hire (PCH) leases in the UK, there usually is a large up-front payment (called initial rental) the equivalent of 3-12 months worth of lease payments. But with a zero-deposit lease, your initial rental only needs to cover the first month of the lease.

Unlike the deposit you pay when renting a property, the initial rental on a car lease is not refundable. It is part of the cost of the lease. You just happen to pay it up-front.

How does a no-deposit car lease work?

A no-deposit car lease works the same as how standard personal contract hire car leases works but without a large initial rental. Instead, you pay an equal monthly amount for use of the vehicle throughout the lease term.

At the end of the lease term, you return the vehicle to the lease company.

The monthly repayment will be higher on a no-deposit lease because you are paying for the full lease amount via the monthly rental payments. If there is a higher initial rental payment, the regular lease payments beyond the first month will be lower.

Bear in mind that even if you can secure a no-deposit car lease, there may still be a processing fee charged by the lease provider that needs to be paid up front (often £200-£300). But in many cases this charge can be included in the monthly rental, in which case there is essentially no up-front cost for the car lease. You only need to pay the first month’s rent and off you go. The flexibility to reduce the up-front cost is one of the main benefits of a car lease.

Is no-deposit car leasing more expensive?

A car lease with no deposit usually doesn't work out to be any more expensive overall. The reason being, you are typically paying the same amount in total regardless of whether you make an upfront payment or not.

But, the regular payment on a no-lease deposit will be higher because the full lease amount is still outstanding. If you pay a large initial rental, a portion of the lease cost is already covered.

Let’s look at an example to show how this works.

No-deposit car lease example

In this example, a driver is leasing a new Vauxhall Corsa over a 36-month term, with an annual mileage allowance of 5,000 miles.

Lease with a deposit (initial rental)

Initial rental (six months’ rent): £1,463.41

Ongoing monthly payment: £243.90

Total to pay: £10,000

Lease with no deposit (initial rental)

Initial rental (first month’s rent): £277.78

Ongoing monthly payment: £277.78

Total to pay: £10,000

Can I get a no-deposit car lease if I have bad credit?

It may be more difficult to get a car lease with no-deposit if you have bad credit. The lease company is taking on a greater risk with a no-deposit lease because there is no up-front amount paid to cover its costs should anything go wrong with the lease.

A customer with a poor credit score is also seen to represent a higher risk and combining these risks is not something every lease provider is willing to do. So if you have a low credit score, be prepared to make an initial rental payment of between 3 and 12 months' worth of monthly payments.

What vehicles are available with a zero deposit lease?

There are usually no restrictions on what kind of vehicle you can get through no-deposit leasing. Usually the range of cars you have access to comes down to which lease provider you choose and what you can afford.

Generally there are zero-deposit car lease options on personal and business lease (e.g. van leases).

What deposit options are available on car leases?

A car lease deposit generally can be the equivalent of three, six, nine or twelve months’ rental. You usually have the choice of which amount to pay, or to go for a no-deposit lease where the initial rental is only one month’s rental.

Which deposit option you choose shouldn’t have a major impact on what you pay in total, but it will impact your monthly payment. Let’s use the same example car with a 36 months lease to illustrate this.

1 month’s initial rental – upfront payment: £277.78; monthly payment: £277.78

3 months’ initial rental – upfront payment: £789.47; monthly payment: £263.16

6 months’ initial rental – upfront payment: £1,463.41; monthly payment: £243.90

9 months’ initial rental – upfront payment: £2,045.43; monthly payment: £227.27

12 months’ initial rental – upfront payment: £2,553.19; monthly payment: £212.76

Is it better to get a car lease with no deposit?

No-deposit car leasing is a popular option, but whether it’s actually better than paying something up front really depends on who you are and what your priorities are. Here are some pros and cons of no-deposit car leasing to help you decide.

What are the benefits of a no-deposit car lease?

You won’t need to stump up a large amount of cash up-front to get your car (you already usually have less to pay initially with a car lease compared to buying a car outright)
With some lease providers the lease won’t work out much more expensive overall compared to leasing the same car and paying a deposit (initial rental)

What are the drawbacks to a no-deposit car lease?

You will have a higher monthly payment
It may not be an option if you have bad credit
Some lease providers may charge you more overall as there is more risk involved when taking on a customer who isn’t contributing a deposit