What Is a Cap Cost Reduction?

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November 9, 2016

A cap cost reduction, or capitalized cost reduction, is the amount of money that a leaser puts down in order to lower the lease cost for a car. The amount that is paid as a cap cost reduction is that which is over and beyond the first month’s payment, taxes, title and other fees. A cap cost reduction helps a lease car owner to reduce their overall lease amount and reduce the monthly lease payments.

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The Effect of a Cap Cost Reduction

Any amount put down on a lease is good for reducing its cost over the term of the lease. A 36-month lease for a vehicle with a $20,000 price tag may have a monthly lease payment of $425 (say at 10% interest). At the end of the lease, the leaser would need to come up with an additional $10,200 in order to purchase the car (based on an overall 60-month loan). If the leaser puts $2,500 down as a cap cost reduction, the payments would drop to around $372 a month for 36 months. At the end of the lease period, the purchase of the car would be for $8,900, $1,300 less than with no down payment.

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