Leasing a car in Los Angeles is a popular alternative to buying – you get the latest model with all the bells and whistles with a lower monthly payment. If you’re considering leasing your next vehicle, should you make a down payment? In leasing, this is called a capitalized cost reduction, and it's usually optional. Making a cap cost reduction lowers your monthly payment, but doesn’t save you any money in the long run.
How Come You Don’t Save Money with a Down Payment on a Lease?
While lessees in Los Angeles lower their monthly payment by putting money down on a lease, it doesn’t help them save money. The reason why is because when you make a cap cost reduction on a lease, you’re simply pre-paying the lease.
The capitalized cost includes the car’s price, inception fees, and title and license fees (if not paid for up front). A monthly lease payment includes the vehicle’s depreciation (plus any extra miles), the money factor (interest rate), and state taxes.
Unlike an auto loan, the interest in a lease is built into the monthly payment and included in the capitalized cost. This means that the amount of interest you pay is pre-calculated, instead of accruing daily as it does with an auto loan.
When you sign a simple interest auto loan, making a down payment lowers the amount you borrower, which saves you money in interest charges over the term of your loan. This means a down payment lowers the overall cost of the loan.
Fees Needed to Lease a Car
Now that you know that making a down payment on a lease is optional, do you know which lease fees are required besides the first month’s payment? Just like a car loan, you have to pay some fees up front when leasing in Los Angeles.
Just what these fees are and how much you need to pay depends on the lessor’s requirements. However, you should be aware of these four common lease fees:
- Disposition fee – Also called a termination fee, this covers the leasing company’s costs to transport and sell the vehicle at the end of the lease term. If you buy the car at the end of the lease, or lease again with the same company, the lessor may waive this fee.
- Documentation, title, and license fees – California title and licensing fees are set by the state, but documentation fees vary by dealership.
- Acquisition fee – This is a fee that’s charged by the leasing company to set up a lease (also called a bank fee in some cases) that’s added to the cap cost and rolled into the monthly payment.
- Security deposit – Not to be confused with a cap cost reduction, security deposits are sometimes required. This is common for lessees with poor credit, and the amount needed is usually equal to the monthly payment. Multiple security deposits may be required, but this varies by lessor. As long as you keep the vehicle in good shape, you get the security deposit(s) back at the end of the lease.
Not Sure if You Can Lease with Bad Credit?
If you’re a Los Angeles resident and aren’t sure if you qualify for a lease with bad credit, you may want to consider financing instead. When you get a loan through a special finance dealer, you have the chance to build your credit and get a car.
You may not qualify for the latest and greatest vehicles on the market, but you can get a reasonable, reliable car to drive for a few years, along with the opportunity to lease in the future when your credit score improves.
If you need help finding a dealership in Los Angeles, Auto Credit Express is here for you. We’ve been helping people in LA and across the US get the financing they need by connecting them to local dealers that have the right lending resources available.
To get matched with a dealership near you, all you need to do is complete our easy and free auto loan request form. Get started right now!