Do you need a down payment for a lease?

The simple answer is no, you don’t need to put down a deposit on a car rental contract, but you can. Putting money on a lease doesn’t reduce the overall cost like it does with an auto loan, but it does lower the monthly payment.

Pay a deposit on a car rental

When you make a down payment on a lease, it’s called a reduction in capitalized costs or a reduction in cap costs. Instead of making the overall cost of the lease cheaper, lowering cap costs only helps you prepay the lease.

Even if your monthly payment is reduced, you are not saving money in the long run. This is because all taxes and interest charges are built into the lease from the start, unlike a car loan.

You end up paying the same amount overall even if you put money on a lease. However, if you want a more affordable payment using a lower cap cost, you can. Your down payment can be made in cash, trade-in capital, or a combination of the two.

The deposit is not refundable, along with other rental fees like start-up fees, title and registration fees, and the first month’s payment, so keep that in mind if you’re considering lower cap costs.

If something happens to the vehicle in the first few weeks or months, you don’t get any of the extra money you’ve turned over.

Car rental conditions

Renting and buying are not the same thing, but they have similarities with different definitions which can make it confusing. Here are a few things that have different names depending on whether you are renting or buying:

  • Deposit – In leasing, we know that putting money in is called a cost cap reduction, but it’s called a down payment when you get a car loan to buy a car.
  • Price – The negotiated price of a vehicle is called the purchase price at the time of purchase, but it is called the capitalized cost at the time of lease.
  • Interest rate – Surely you’ve heard of an interest rate on a car loan, but it’s called a money factor when leasing. A monetary factor is the amount charged for financing and is expressed as a decimal rather than a percentage, although it works much the same way as an interest rate.

The bottom line

A down payment isn’t required for 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 are thinking about renting your next car, you need to know the rental conditions you have to meet. Most important is your credit situation – leasing is usually reserved for people with good to excellent credit.

If your credit is not perfect, you may not be eligible for a lease at this time. 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 rent again in the future.

When you’re ready to start buying a car, Auto Express Credit is here to help. We connect consumers with special finance dealers who have known how to deal with bad credit for 20 years. Fill out our free auto loan application form, and we will do our best to put you in touch with a dealer near you!

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