Should I Put Any Money Down When I Lease?

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September 13, 2018

If you are thinking of leasing a new car, and you have good or excellent credit, whether you put money down on a lease purchase will usually be up to you. While many car dealerships will recommend that you make a fairly substantial down payment on a leased vehicle, you should try to avoid leases that require a large deposit or initial payment.

See this month's top zero-down SUV leases »

When you are thinking of leasing a new vehicle, you should consider that the strategy involved in leasing a new car is in many ways directly opposite to that used to buy a vehicle. While a down payment is usually a good idea for purchasing a vehicle, you should avoid leasing contracts that require a down payment.

When leasing the vehicle, the down payment is usually called a cap cost reduction. Many times, customers will put down a fairly substantial amount of money in order to lower their monthly payments.

A cap cost reduction in a lease is very easy to understand if you put it into standard car-buying terms, not leasing or business terms. When you buy a car, there comes a point where everyone has shaken hands and you sign over a down payment on the vehicle (plus your own vehicle, if it's a trade). This is the capital cost reduction in a car lease. It's anything you put down up front to help keep the cost down or to help obtain a special incentive program. If your credit's poor, it may also be needed to help you get the lease. That's all the cap cost reduction is.

While making a down payment will certainly reduce your monthly payments somewhat, you should consider this: you could get into a serious accident in the first few months of the lease, and the car may be totaled. If something like this happens, your down payment is completely lost. Even if you have high-quality collision insurance and gap insurance, none of your down payment will ever be refunded.

No Down Payment Means Zero Down

When thinking about leasing a car, you want to avoid down payments at all costs. Because leasing a car will help you maximize your cash flow, tying up a lot of money in a lease down payment is certainly not the way to go.

Instead of making a down payment of $3,000 or $4,000, put that money into a separate bank account and make your higher lease payments out of that account. In fact, if you choose an interest-bearing account, you may actually earn a few dollars in the process.

You can take the no down payment strategy one step further by rolling all of the drive-off costs into the monthly lease payment as well – this results in nothing being paid up front. Drive-off fees are lease-related fees required to drive your car off the lot, such as a security deposit, acquisition fee, service fees, drive-out charges, or similar.

Finance it All and Still Save

By rolling all of these fees into your monthly lease payment, you're able to drive off the lot with absolutely no money tied up in your new car and all of it in your bank account. You will find that even if you do roll all of these fees into your monthly payment, the monthly payment will usually still be much less than a monthly car payment required with a standard vehicle purchase.

So, when you are trying to arrange financing for your next new car or truck purchase, you always need to consider the initial costs, as well as the longer-term financial picture.

Under ideal conditions, you always want to maximize the power of your capital while retaining as many options as possible. If you're thinking of leasing a vehicle, a zero down payment will put you in the strongest possible to better manage the money you save.

See this month's top zero-down SUV leases »

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