What Is a Car Lease Cap Cost

The cap cost for a car lease is also known as a capitalized cost. This term refers to the amount that is being financed for your lease. This is where a big confusion for customers begin because capitalized cost or cap cost is not a term used in traditional financing of a new car.

The lower this capitalized cost, the lower your monthly lease payments. Here are the 4 elements of a capitalized cost and how the cap cost is calculated.

Capitalized cost – cost of your new car
Gross capitalized cost  – cost of your new car PLUS any other costs to be financed in the lease
Capitalized cost reduction – down payment which can be either cash due at signing or trade in vehicle amount.
Net capitalized cost  – gross capitalized cost MINUS capitalized cost reduction

Let us now go through the specific details of the cap cost.

  1. PRICE OF THE NEW CAR

The capitalized or cap cost include:

  • Negotiated price of the new car
  • Any fees
  • Taxes
  • Any balance of a previous loan of a car you are trading in.

Basically the capitalized cost for leasing a new car is the same as the amount you are financing. As you can see, dealership and financing companies try to trip you up by using different terms than what you would see in a traditional financing option.

2. ACQUISITION FEE

This fee is unfortunately part of the lease and non negotiable. You can choose to pay the acquisition fee up front at signing or you can choose to add this amount to the capitalized cost as part of the amount you are financing. You can check out more information on what is an acquisition fee.

3. SALES TAX

Sales tax, of course, cannot be avoided. With new car leases there are two scenarios. 1) in very select few states, you will be charged a sales tax for the entire price of the vehicle rather than as part of each monthly payment. 2) in most states sales tax is paid as part of each monthly payment.

4. GROSS CAPITALIZED COST

In car lease agreements, the sum of everything included in the capitalized cost is called the gross cap cost. It does not stop there because you have additional calculations to make.

5. CAPITALIZED COST REDUCTION

The cap cost reduction is really simply any of the following:

  • Cash down payment, which is very different from a security deposit. You do not get back a down payment.
  • Trade-in credit for a car you are trading in
  • Any dealership or promotional lease deals that reduces the amount being financed also known as the capitalized cost.

Cap cost reduction is basically the total amount you are using to reduce the total amount of the capitalized cost (amount you are financing). Different term from the traditional financing auto loan, but same impact on reducing your monthly lease payment.

Educating yourself is a very good idea as some dealerships will try to trick you and not reduce the cap cost by the same amount if you are trading in a vehicle.

6. NET CAPITALIZED COST

Net cap cost is just doing some math. It is the gross cap cost MINUS the cap cost reduction. This is the number used to calculate your lease monthly payment.

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