What is capitalized cost reduction?

Capitalized cost reduction, also known as cap cost reduction, refers to any upfront payment made at the start of a lease contract to reduce the capitalized cost of the vehicle being leased. This payment is similar to a down payment on a purchase, but differs slightly in how it affects the lease agreement.

Cap cost reduction can come in the form of cash, a trade-in vehicle, or a rebate. By making a cap cost reduction, the lessee can lower their monthly lease payments because the total amount being financed is reduced. However, it is important to note that the cap cost reduction is not refundable if the vehicle is returned before the end of the lease term.

It is advisable to negotiate the cap cost reduction amount before signing a lease agreement and to carefully consider the financial implications of making such a payment. Additionally, it is important to understand how the cap cost reduction affects the total lease cost and whether it is a worthwhile investment in terms of the potential savings on monthly payments.