Is a Zero Down Lease Possible? What’s the Catch?

For many car buyers, the sticking point is when a down payment is required. Whether it’s advertised as $3,995 down, $2,995 down, or $1,000 cash down payment, it presents a problem. It’s less common than ever for car shoppers to have thousands of dollars saved up to use as money down on a lease, so naturally they choose to finance with no money down instead.

But the question that begs to be answered is this: Are zero down lease deals available too?

Yes, 0 down car leases are real

Just like financing a new car with no down payment, zero down lease deals are possible. Although the norm is for car makers to advertise leases with a footnote that shows a down payment amount, those same vehicles are often available as a 0 down payment lease.

What is a zero down lease?

With all leases, you’re making payments on the difference between the purchase price and a predetermined residual value. At the end of your term, you have the option to buy out your lease for the residual value or turn it in.

Stay with us here. If a car ad says you need to put $2,000 down on a lease but you choose a zero down lease instead, it does not mean you saved $2,000. The amount of money you avoided as a down payment is financed instead. Regardless if you make a down payment or not, the total amount you’re making payments on remains the same. Essentially, you finance it instead of paying it up front.

Whether a zero down lease is right for you or not depends on your situation. And like all deals, there are advantages and disadvantages to consider.

What are the advantages of a zero down car lease?

The most obvious advantage is that you don’t need to scrape together thousands of dollars as a down payment. BMO reports that a third of Canadians have less than $10,000 saved up and less than a quarter are saving toward a car purchase. Depleting your savings account can leave you in a lurch if you have a sudden expense, so it can be good to avoid making a down payment.

And if you write off your vehicle in an accident, even if you have GAP insurance, you could lose your down payment. Unless you purchase New Vehicle Protection coverage from your insurer, you could be left holding the bag if your vehicle is stolen or written off in the middle of your lease.

If you do have money in your account, you can use it to pay down other high-interest debts or invest it instead. Because most leases have aggressive subvented rates from the manufacturer, you can put your money to work in other ways without worrying about high interest lease costs.

Are there disadvantages to a zero down lease?

Without putting a fistful of cash down for the vehicle you want to lease, it can be hard to get approved. Lenders view a down payment as a commitment you’re making – if you put money down, you’re less likely to default on the lease, have your car repossessed, and lose your down payment. You’ll need to have good credit history to prove yourself worthy of a no down payment car lease.

Without a down payment, your payments will naturally be higher. If the difference between the selling price and the residual is $10,000 and you’ve foregone a $2,000 down payment, your payments will need to make up the difference. That may stretch your debt-to-service ratio enough to disqualify you from a zero-down lease.

Minimum credit score required for a car lease with no money down?

Overall, you need to have a good credit score to lease a vehicle. One of the major credit bureaus, Experian, explains that auto leasing companies look for credit scores of 700 or higher to qualify for a lease.

It can be challenging to lease a car with bad credit and no money down. For a zero-down lease, you should have a bare minimum of a ‘Good’ credit rating according to the FICO scale, but that might not be enough. To qualify for a zero down lease, you may need a ‘Very Good’ FICO score of 740 to 799 while an ‘Excellent’ score of 800 or higher is almost a sure thing.

How to qualify for the best zero down lease deals

Are you unsure if your credit is up to snuff? You can check your credit score for FREE at Borrowell. Here are a few tips to give you the best chance of an approval.

• Build a strong credit history. It can take time to build up your credit score, but perhaps not as long as you think. There are a few steps you can take to ensure your credit score maintains an upwards trajectory, but the most important part is to make your payments on time, every time.
• Pay down current obligations. If you currently have several financing agreements in place or you’re paying out a significant portion of your take-home pay every cheque, you may not qualify. Pay down your debts as much as possible before applying for your lease.
• Find a co-signer. We all need help sometimes. Ask a trusted family member or friend if they’ll cosign for your lease so you can get the best terms.
• Seek out the right dealership and loan provider. Do some research on which models you’d like to lease and be on the lookout for specials. The best time to strike is often when new models are introduced.

Cheapest cars to lease with no money down

$0 down lease specials are available from virtually every manufacturer – sometimes you just need to ask. But if you’re looking for the cheapest car to lease with no money down, here are a few suggestions.

• For car leases under $200 a month with no money down, you could check out subcompact and compact cars. You’ll be able to find base trim levels in select models that fit your budget.
• Timing is everything. When the model year is just about to switch over to the next year, financing incentives become aggressive. It’s a great time to shop for a car without putting any money down.
• Experiment with leasing terms. Often, you’ll be able to get lower lease payments by choosing a longer lease term. Combine that with a low mileage limit resulting in a higher residual value, and you could be paying less than you expected every month.
• If you’re searching for the best truck lease deals with 0 down, look at entry-level trims. For a full-size pickup truck, you should be able to find 0 down leases over 60 months for under $400 per month plus applicable taxes. For a midsize truck, you should be under $350 for the same term.

Car lease or loan?

If you would rather own your car outright at the end of your payment plan, it takes two minutes to know if you're eligible for auto finance with zero down payment at Canada Drives. Getting pre-approved has zero impact on your credit score, and there's no obligation to buy. Get pre-approved today!