Leasing Upfront Costs (Car)?

Question

Hi, I just wanted some clarification on leasing costs that one pays upfront at the dealership. I'm confused about the GAP concept and how that plays into the monthly payments. I see most manufacturers state a monthly rate, let's say $339 per month. Then they say something like $3,000 initial payment. Now they say within that 3k is the first month's payment.

My question is if aside from taxes, title and such, is there anything else I should look out for? I've read that down payments don't really have an effect on the lease payments so I would like some clarification on that if possible. Does that mean that in theory with just $3,000 + taxes, title, registration and such, the monthly payments would indeed be the $300 dollar amount?

Thank you!

Answer 1

Although leases don't require a down payment, some advertised lease deals do require it if you want the payment that they advertise.

Some lease deals are advertised as requiring, say, $3000 at lease inception. What this means is that in the $3000 you are paying the first months payment, a down payment, sales tax on the down payment, tag and registration fee, and possibly a security deposit (usually about the same as one month's payment). The down payment portion, or cap cost reduction, would be about $2000 in this scenario.

So you pay $3000 and $2000 of that goes to down payment, which reduces your monthly payment amount. So, yes, a down payment definitely affects your payment, just like with a loan.

GAP insurance or a waiver is included in most lease agreements at no extra cost. It covers you if your car is stolen or totaled in an accident and your insurance doesn't pay the entire balance on your lease. It is absolutely necessary in a lease.

Answer 2

When they ask for $3,000, that's called a Capital Cost Reduction.  This down payment is used to reduce your monthly payment.  It's usually used when they are advertising a payment like $199 for 24 months (with $3,000 down).  You don't have to put the $3,000 down, but then your payment might be $299 per month.  Down payment does impact your monthy payment amount.

Gap insurance simply covers you if you're upside down on your loan.  If your car gets totaled and the insurance company pays $10K, but your loans balance is $13K, gap insurance covers the balance of the loan.

Answer 3

http://www.federalreserve.gov/pubs/leasi...

Read the link, it will answer any questions about leasing.