The simple answer is no, you don’t need to make a down payment on a car lease, but you can. Putting money down on a lease doesn't lower the overall cost like it does with an auto loan, but it does lower the monthly payment.
Making a Down Payment on a Car Lease
When you make a down payment on a lease, it’s called a capitalized cost reduction, or cap cost reduction. Instead of making the overall cost of the lease cheaper, a cap cost reduction only helps you pre-pay the lease.
Although your monthly payment is lowered, you don’t save any money in the long run. This is because all taxes and interest charges are built into the lease up front, unlike an auto loan.
You end up paying the same amount overall even if you put money down on a lease. However, if you do want a more affordable payment by using a cap cost reduction, you can. Your down payment can be made in cash, trade-in equity, or a combination of both.
The down payment isn’t refundable, along with other leasing charges such as an inception fee, title and registration fees, and the first month’s payment, so keep that in mind if you’re thinking about a cap cost reduction.
If something happens to the vehicle within the first few weeks or months, you don’t get any of that additional money you put down back.
Car Leasing Terms
Leasing and buying aren’t the same thing, but they have similarities with different definitions that can make it confusing. Here are few things that have different names depending on if you lease or buy:
- Down Payment – In leasing, we know putting money down is called a cap cost reduction, but it's called a down payment when you get an auto loan to buy a car.
- Price – A vehicle's negotiated price is called the purchase price when you buy, but it's called the capitalized cost when leasing.
- Interest Rate – Surely you've heard of an interest rate on a car loan, but it's called a money factor when leasing. A money factor is the amount charged for financing and is expressed by a decimal rather than a percentage, although it works in much the same way as an interest rate.
The Bottom Line
Making a down payment isn’t required on a lease, but that doesn’t mean you can't make one. If it makes sense for you to apply a cap cost reduction, go for it!
If you’re thinking about leasing your next car, you should be aware of the leasing requirements you have to meet. The biggest one is where your credit stands – leasing is typically reserved for people with good to excellent credit.
If your credit is less than perfect, you may not qualify for a lease right now. Instead, you may need to consider a bad credit auto loan if you need a vehicle. You can use the loan to improve your credit score, and try to lease again in the future.
When you’re ready to take the plunge into car buying, Auto Credit Express is here to help. We've been connecting consumers to special finance dealerships that know how to handle bad credit for 20 years. Fill out our free auto loan request form, and we’ll get right to work matching you to a dealer near you!