When choosing a financial product such as leasing, it is important to understand the difference between a down payment and a deposit. These two terms have different functions and meanings, so it's good to know exactly what they mean and how they affect your financial situation.

What is a down payment?

A down payment is the initial payment you make when you enter into a lease agreement. This payment is a percentage of the total value of the lease. The down payment serves as a non-refundable down payment (first payment) that reduces the total amount of the financing.

Calculation of the down payment: the down payment is calculated as a percentage of the total cost of the vehicle or other leased item. For example, if the value of the vehicle is €20,000 and the down payment is set at 20%, this means that you will pay €4,000 (20% of €20,000) at the start. This amount is then deducted from the monthly rent, which is made up of the depreciation of the vehicle and the value of the services included in the operating lease.

Advantages of the down payment:

Reduced monthly payments: a higher down payment means lower monthly payments because you have already paid a larger part of the total amount at the beginning.
Lower overall financing costs: Paying a higher down payment can reduce your overall interest costs because you are financing a smaller amount.
Better approval terms: with a higher down payment, leasing companies may be more willing to approve your lease because the risk of default is reduced.

What is a deposit?

A deposit is the amount of money you put up as security when you enter into a lease agreement. Unlike a down payment, a deposit is not an initial payment that reduces the total amount financed. The deposit serves as an insurance policy for the leasing company in the event that the vehicle is damaged or the terms of the contract are not met. Upon termination of the lease agreement and when all conditions have been met, the deposit is returned to the client.

Benefits of the deposit:

Protection for the leasing company.
Motivation for the client: the client is motivated to keep the vehicle in good condition and to comply with the terms of the contract so that the deposit is returned in full.

Summary:

The difference between a down payment and a deposit is substantial and each has specific uses and benefits. A down payment is an initial payment that reduces the total amount financed and thus the monthly payments. A deposit is collateral that protects the leasing company from the risks associated with the lease. When entering into a lease agreement, it is important to consider both of these factors and understand how they will affect your financial obligations.

For more information on leasing and financing options, visit our website at avislease.sk or contact us. We'll be happy to help you find the best solution for your needs.

The difference between a down payment and a deposit: What do you need to know?