Car lease query

[MooMooSharoo]

Hello all,

I preface this by saying I am a qualified accounts professional who should really understand this stuff, but for some reason I can never quite get my head around this, and I can't find anything useful online that tells me the answer to my question.

If you lease a new car (PCP) and, for example, you pay a £5,000 initial payment, then swap the car at the end of the lease for a new one, do you have to pay another initial payment?

I was just looking at leases and my current car is worth about £15,000 which would give me a great initial payment, and brings the monthly costs down to a nicer amount, but I'd be worried about the next car rather than this one.

Would I (effectively) have to save another £15,000 to use as an initial payment next time around, or does either my first payment or the value of the car I'd be returning somehow get used as a deposit for the next one?

As I understand this stuff (and IME but way back in 2005-8) supply of a car PCP usually involves a down payment, a requirement to pay a found amount every month for an agreed period, say 3 years, to the finance co and a Guaranteed Future Value (GFV) ascribed to the vehicle at the end the agreement.

There are other requirements over things like mileage and condition but they're only peripherally relevant here.

At the end of the agreement the lessor can (a) pay a balloon payment as per the agreement and own the car or (b) return it.

If at return the car, after adjustment for condition or excess miles, is worth less than the GFV then the finance/dealer bears the loss.

If it's worth more, and most are as the GFV is set very conservatively, then the surplus can be moved forward as a whole or partial deposit on a new vehicle.

Thank you - that does make sense and confirms my concerns that a good deposit now does not guarantee a good deposit in the future. To save that kind of level again to put towards the next one just isn't feasible.

I've always either bought cars with cash or personal finance before. My current car was bought on an HP agreement that financed the whole purchase and I ended up paying it off early.

I've just found that my bank has a comparison checker. If I finance £20,000 under PCP my payments would be £349.38 per month for 4 years plus a payment of £7,299.77 to buy the car at the end.

Under HP it's £462.18 per month for 4 years, but nothing to pay at the end.

Total payments under PCP = £24,070.01 and under HP = £22,184.64.

So for £112.80 extra per month now, I own the car at the end, versus having to save the equivalent of £152.08 a month now to pay the lump sum at the end.

Alternatively, don't pay the lump sum and use any excess value over and above the balloon payment as a downpayment on the next PCP lease. This is obviously not guaranteed.

Or, in my case... increase the HP to 5 years, rather than 4, whereby the monthly repayments drop to £379.03 per month, which makes the month payments closer to the PCP amount, and give a total payment of £22,741.80, so only £557 more than over 4 years.

I think I'll stick with buying them on HP... I tend to keep cars for more than 5 years anyway, so I get some "free" time at the end once it's paid off.