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| Down Payment - Lease Cap Cost Reduction | |||
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Down payment, regarding a car lease, refers to the part of the initial money paid at lease inception that serves to reduce the amount owed on the lease. It is usually called, Capitalized Cost Reduction, or simply Cap Cost Reduction. A modest down payment can often significantly reduce monthly payment amount. It is important to understand that some of the money paid at lease inception is for first month's payment, tax, title fees, and other fees that are not considered as cap cost reduction. This is often a point of confusion to consumers leasing for the first time. What is sometimes called "drive out cash" or "due at lease inception" is NOT all down payment, and may not include any down payment at all. For example, a leasing customer might have $3000 cash to put "down" on the lease of a new car. After first month's payment, security deposit, and official fees have been deducted, it might leave, say, $1500 as cap cost reduction, or down payment. When doing lease payment calculations, one would $1500 as cap cost reduction amount, not $3000. One of the advantages of leasing is that a down payment is usually not required, except for some special deals typically offered by major car manufacturers. In fact, a down payment can be a disadvantage if the vehicle is stolen or destroyed in an accident before the end of the lease. In this case, the customer may not get much if any of their down payment money back in their insurance settlement. Some lease deals advertised by car manufacturers require a down payment in order to get the advertised monthly payment. These are usually genuinely good deals. Many people who could otherwise pay money down on a lease choose to use the money for other, more productive purposes. Paying down a credit card account, for example, is usually a better way to use the cash. Or investing in a good stock or mutual fund. For more information, see: The Lease Guide
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