Do I Need a Down Payment on a Car Lease?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - October 11, 2019

Leasing a car is a popular alternative to buying – you can drive the latest models, typically with a lower monthly payment compared to if you took out a loan, and you don’t have to worry about repairs thanks to the warranty coverage. Unlike buying, leases don’t require a down payment, called a capitalized (cap) cost reduction, but you can put money down if you’d like. However, you’re not saving any money on a car lease if you make a cap cost reduction.

Why a Down Payment Doesn’t Save You Money on a Car Lease

It’s true that when you make a cap cost reduction on a lease your monthly payment drops, but you aren’t reducing the overall cost of the lease. This is because the total cost of a car lease is set ahead of time.

The monthly payment on a lease is based on the difference between the cap cost and the residual value (what the leasing company estimates the vehicle is going to be worth at the end of the lease), plus the precomputed interest charges, divided by the number of months in the lease term, plus state sales tax.

The capitalized cost includes the car’s selling price and any inception fees not paid up front that include a title fee, documentation fee, and license and registration fees.

Since the interest expense in a lease is built into the lease payment and doesn’t accrue daily like an auto loan, when you make a down payment on a lease, you’re just pre-paying a portion of the interest charges, and the balance of the interest costs remain.

You can put down as much money as you want, but it doesn’t result in a lower overall cost like a down payment on an auto loan does. Therefore, it generally doesn’t make sense to pay money up front with a lease.

Required Lease Fees

Unlike buying a vehicle, the first month’s lease payment is required up front, and you should pay the title and first year’s license fees. Otherwise, you’re going to be charged interest on them.

What other fees are required in a lease? There are four you need to be aware of:

  1. Documentation fee – Also called an administrative fee, this covers the dealer’s cost of processing the paperwork with the leasing company and the state. This is usually a few hundred dollars, but the amount varies by dealership.
  2. Acquisition fee – Also called a bank fee, this is charged by the leasing company to help set up the lease and is typically added to the cap cost and rolled into the monthly payment.
  3. Disposition fee – Also called a termination fee, this cover’s the leasing company’s cost to transport and sell the car at the end of the term. This fee is often waived if you decide to lease with the same company again.
  4. Security deposit – Technically not a fee, a security deposit is sometimes required if you fall within the lowest credit tier. This isn’t the same as a cap cost reduction, and as long as you maintain the leased vehicle, you get your deposit back at the end of the lease.

Can I Lease a Car with Bad Credit?

Many consumers wonder if it’s possible to lease a car with bad credit. It’s unlikely to happen, but it isn’t impossible. As we noted, leases are priced by tiers; the lower your credit score, the lower the tier you qualify for – that is, if you’re able to qualify at all.

If you’re able to qualify for a lower lease tier, you can expect these three things to happen:

  1. Your interest rate (called a money factor in a lease) is going to be higher than average due to your bad credit.
  2. The lessor may ask you to make one or more security deposits up front. Again, this is a result of having less than perfect credit.
  3. You may be required to provide proof of income, residence, and phone, just as you would be if you were financing a vehicle with poor credit.

The Bottom Line

You don’t need to make a down payment on a car lease, and it won't save you any money overall. However, if you have bad credit, you can expect to need a security deposit up front.

If you’re unsure about whether or not you should lease or buy your next vehicle, consider your credit – if it’s too low, you probably won’t qualify for a lease and are better off financing a car with a bad credit auto loan. If you need help getting the financing process started, CarsDirect wants to point you in the right direction.

We work with a nationwide network of special finance dealers that have the lending resources to handle unique credit situations. All you need to do is complete our easy, free, and fast car loan request form, and we'll work to match you with a local dealership. Don’t let your bad credit hold you back, get started today!


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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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