No-Deposit Electric Car Leasing Deals – Is it possible?

No-deposit electric car leasing deals – Is it possible?

The growth of car leasing over the last 10 years has been formidable; contract hire has very much become the foremost way in which to procure a new car or van. For many companies utilising company car schemes, many of their contracts would be based on what we would term “no initial rental”. Because contract hire is a not a purchase-style product we do not adopt terms like deposit or payments – we would always say rental or initial rental with a customer.

When you see a reference to a no initial rental or “1 spread” deposit, this means that the customer will pay the same in month 1 as they would in the final month – for some this is the coveted no deposit deal . For a company, cash-flow is a key part of their operation and it makes little sense to utilise larger initial rental contributions on their company vehicles. With leasing there is no financial benefit in making big initial rentals.

As it is not an interest-led financial product, if you pay a bigger initial rental this would not make the overall cost of the agreement any cheaper. This is why you will see the total amount payable on the e-car lease website, so that it displays the overall costs of the agreement. Whether you make a big, or small, initial rental, the overall cost should be the same. This is something which many personal lease customers miss when they are looking into their next electric car – the headline rental displayed on an advert could innocently mislead them in the supposition that this is a better deal than one with a lower initial rental / higher monthly rental.

While business leasing was very much attune to the no-initial rental arrangement, some of the personal leasing customers were not distinctly aware of this. Indeed, many of the best prices for a lease deal would be based on big initial rentals, often 9 or 12-spread arrangements, which effectively meant unrealistically high rental payments in month 1 in order to achieve an affordable monthly rental throughout the contract.

Because leasing is a usership product, the vehicle must be returned at the end of the 2, 3 or 4 year contract and the customer will have to re-commence on a different vehicle. Is this going to be affordable to do every two or three years for you? This is why we educate the customer on the overall cost of an agreement, so they do not think they are being charged more or being ripped off on the higher monthly rentals where a “no-deposit option” is selected.

Some of this is a historic fallout of how traditional car dealerships would run their advertising strategies around sizeable deposits on long-term / low mileage PCP arrangements. The concern was that these adverts were not realistic and do not reflect what the customer will actually undertake at the point of sale.

Have electric vehicles impacted this? Absolutely. Where we have noticed a big uptake in EV’s has been in the salary sacrifice community, which is a way of companies and their employees running a leasing scheme which benefits both parties financially. Because salary sacrifice still attracts company car tax, by having an EV you massively reduce your monthly BiK exposure, thereby making this an attractive proposition. For most salary sacrifice schemes, these will be based on a no initial rental scheme, it would be very uncommon to utilise a big initial rental/deposit. Because of this, more companies are advertising in this way and this is very much impacting on how customers choose their financial arrangements. For e-car lease, we have almost certainly seen a growing interest on pch, bch and sal sac for no initial rental contracts. But can everyone have one?

Will I (or my company) be accepted for credit?

Contract hire and leasing is a credit based product and before we are able to order a new EV for a personal or business customer we must go through a credit application. As a credit broker, we are not the finance company who will purchase the car and organise the rental payments with you. As a broker, we introduce you to a select number of finance companies who we have chosen to work alongside.

In order to proceed further, we would ask you to complete a credit application form which asks for personal details about you or the business so that the underwriting teams at the finance company can make assessment on you. They will look at two main elements:

1. Your ability to pay (affordability)
2. Your willingness to pay (likelihood of payment). To be clear, leasing is not a way of procuring a new vehicle for those customers with bad credit.

This is very much a prime credit application process. For personal customers, we suggest using Experian before you make the formal application so that you understand your credit position. While this is not the only metric, this is a good start in understanding what credit you have in place and what lenders share information about you. While this is relevant for businesses, as directors of the company may be underwritten as part of the agreement, the most important thing for a company is that they have at least 2 years’ accounts filed at Companies House and these demonstrate a net worth commensurate to the vehicle being applied for.

Because a no initial rental/no deposit arrangement is a slightly higher risk for the finance companies, they will look at the application more closely. For some customers, the reality is that this may not be available and some finance companies can ask for bigger initial rentals to minimise their credit risk. To reiterate from above, the overall cost of your arrangement is exactly the same. This is more about risk management for the finance companies.

What we suggest to borderline cases, is that we apply for the no initial rental deal on the electric car but with the understanding more capital may need to be paid upfront. And with long-lead times being experienced at present, make sure you allow enough time for the new car to arrive.