Cap cost reduction, explained
The upfront cash you put down on a lease to lower your monthly payment and the total amount you'll finance.
What it means
Capitalized cost reduction is lease-speak for a down payment. It's any upfront money that reduces the cap cost (the price you're financing) before the leasing company calculates your monthly payment. This can include cash, a trade-in, rebates, or dealer incentives. Unlike a loan down payment, you're not building equity. You're prepaying depreciation on a car you'll return.
Why it matters
A bigger cap reduction lowers your monthly bill, but it also puts more of your cash at risk. If the car is totaled or stolen in month two, your insurance pays the leasing company, not you. That upfront money is gone. The math rarely favors a large cap reduction. You're usually better off keeping cash in reserve and accepting a slightly higher payment. The exception: when a manufacturer subsidizes the lease with a big rebate that you can apply as cap reduction without spending your own money.
What to do
Before you negotiate a lease, decide whether you're willing to put money down at all. Run the numbers with and without cap reduction to see the monthly difference. If you're comparing lease offers or trying to decide whether leasing beats buying, use our lease vs buy tool to model the total cost including any upfront cash.
Simple vs precomputed interest
Two methods for calculating loan interest that determine whether paying off your loan early actually saves you money.
Prepayment penalty
A fee some lenders charge if you pay off your auto loan early or refinance before a set date.
Payoff quote, explained
The exact amount required to own your financed car outright, including interest accrued through a specific payoff date.