What Is Capitalized Cost Reduction? Your Questions Answered

What Is An Auto Lease Capitalized Cost Reduction?

Under a car lease, you pay for the difference between the capitalized cost and the residual value of your leased vehicle. The capitalized cost represents the value of the car at the beginning of the lease plus any additional costs you roll into your lease. The residual value is the value your leasing company estimates your lease vehicle would fetch on the open market at the end of the lease.

At the beginning of a lease, you may have to pay a capitalized cost reduction. It is analogous to a down payment you might make when purchasing a car, except that a capitalized cost reduction payment does not help you build equity (i.e. ownership) in your car.

Still, a capitalized cost reduction benefits you in that it can reduce your monthly lease payments. Depreciation is one of the two big things you pay for with your lease payments (your money factor, which is like interest, is the other). When you make a capitalized cost reduction payment, you bring down the difference between your leased vehicle’s capitalized cost and its residual value, meaning you pay for less of this difference during the course of your lease with your lease payments.

A: Capitalized Cost

B: Residual Value

C: Capitalized Cost Reduction

Illustration of a car lease capitalized cost reduction

Purchase Your Leased Car Through IFS

Pre-qualify with no credit impact. Tresl will curate finance offers for you and manage the transaction process.
Related Posts
Someone who wants to buy a leased car

4 Steps To Buy Your Leased Car

If you enjoy your leased vehicle, it’s only natural to want to keep it. Lease buyouts during or at the end of your term are common. In fact, manufacturers are most often all too happy to sell you the vehicle you leased.

Read More »
Shaking hands after buying your car lease early

How To Buy Your Car Lease Early

Most lessees will drive their leased vehicles until the end of the contract and return it to their dealer. But a three-year car lease is not set in stone. In fact, if you’re looking to buy your car lease early, you can follow the footsteps of thousands of people who have done the same.

Read More »

Share this post with your friends

What Our Customers Say