In some situations, putting down a security deposit can help enable shoppers to get a cheaper lease on a car. Even better, multiple security deposits can be used strategically to bring down the money factor (interest rate). These refundable security deposits can have some noteworthy benefits if you have a less-than-perfect credit score.
How do security deposits differ from down payments or the amount due at signing? An important distinction is that security deposits are usually optional and are refundable or transferable at the end of the lease. They are also paid in addition to a down payment or amount due at signing.
However, it’s worth noting that this strategy may not be available across all brands or in every location, as is the case with New York State, where security deposits on a lease cannot exceed $749. That said, different brands may have different program guidelines. In fact, some brands allow multiple security deposits, with each deposit bringing down the money factor by a predetermined number of points.
Security deposits are generally calculated by base monthly payment (before any money factor reductions) rounded up to the nearest $50. In other words, if a base payment is $309/month and you want to reduce the money factor, you could simply pay a security deposit of $350, in some cases.
Depending on your credit rating, and if you can afford the upfront cost, it may be a good idea to offer multiple security deposits to shave off a few thousand dollars in interest over the life of the lease.
Toyota currently offers a multiple security deposit option where each security deposit lowers the lease's money factor by 0.00008. That doesn't sound like much, but Toyota lets customers make up to nine deposits, bringing the total money factor deduction up to 0.00072, which is equivalent to a lease rate deduction of 1.7%. That could add up to a lot of savings over the course of your lease, especially with a 60-month term.
There aren't as many brands offering the option for using multiple security deposits as there were a couple of years ago, but keep an eye out in your lease agreement's fine print, as it could be a creative way of saving.
The multiple refundable security deposit strategy may not be feasible for a lot of people, but that isn’t to say that there aren’t good lease deals to be had. Every month, most brands typically offer some promotional lease incentives, and we compile that data from around the country and publish the best available deals with insider knowledge of what constitutes the best value for your money.