Lease advertisements usually call for a down payment in addition to taxes and fees. You do not have to put anything down toward a lease besides your first payment; however, your monthly payment will then increase. Most lease advertisements assume the cheapest payment. Consider adjusting your down payment amount, but be sure to watch your budget.
Some banks adjust the lease interest rate depending on the total amount purchased or paid. For example, your lease might warrant a 5 percent interest rate assuming that you do not exceed 50 percent of the vehicle's lease value. In this event, the rate may jump to 6.5 percent if you don’t reach the correct threshold. While you don't have to provide the suggested down payment, your interest rate may change and increase your monthly payment.
Work With Your Dealer
Leases are complicated; residuals, rates and vehicle depreciation values are determined by the leasing bank and often change monthly. While you can attempt to figure the lease payments and adjustments on your own, asking a dealer to help you reach your targeted payment is beneficial. Dealers use a computerized system to figure out lease payments. You can also roll the down payment, taxes and fees into your lease. Work with the dealer if you want to adjust the down payment amount, the term or the mileage.
Budget Your Payment
Unless you plan to provide the lease advertisement’s down payment requirement, your lease payment may increase significantly. Every $1,000 that you take away from the advertised down payment requirement should reflect about a $30 difference in the monthly payment. For example, if you decide to roll in $3,000 that the lease originally called for as a down payment, you may see a $90 increase in monthly payment. Negotiate the price of the vehicle to help offset the amount of your down payment.
Down Payment Considerations
Putting down a down payment toward a lease is inadvisable. Leasing banks require that you carry a full-coverage insurance policy on the vehicle throughout the term of the lease. Because the vehicle belongs to the bank, you will not receive an insurance payoff if your car becomes a loss. Your leasing bank is the loss-payee listed on your insurance policy. Even if you pay your entire lease upfront, which may prove as much as 50 percent of the vehicle’s value, you won't receive any of that money back if the car is declared a loss by your insurance company.
- Edmunds.com: Leasing Glossary
- Edmunds.com: Down Payment — How Much if Any?
- Consumer Financial Protection Bureau. "What Should I Know About the Differences Between Leasing and Buying a Vehicle?" Accessed April 12, 2020.
- Merriam-Webster. "Lease." Accessed April 12, 2020.
- AARP. "To Buy or Not To Buy." Accessed April 12, 2020.
- Consumer Financial Protection Bureau. "What is a Manufacturer Suggested Retail Price (MSRP)?" Accessed April 12, 2020.
- LeaseGuide.com. "Capitalized Cost – Cap Cost." Accessed April 12, 2020.
- Autotrader. "Leasing a Car: Can You Negotiate the Price?" Accessed April 12, 2020.
- Edmunds. "The 'Residual Value' of Leasing." Accessed April 12, 2020.
- Federal Reserve. "Keys to Vehicle Leasing: Future Value." Accessed April 12, 2020.
- LeaseGuide.com. "Money Factor—Explained." Accessed April 12, 2020.
- Federal Trade Commission. "Financing or Leasing a Car." April 12, 2020.
- Federal Reserve. "Keys to Vehicle Leasing: End-of-Lease Costs: Closed-End Leases." Accessed April 12, 2020.
Shanan Miller covers automotive and insurance topics for various websites, blogs and dealerships. She has extensive automotive experience, including auction, insurance, finance, service and management positions. Miller has worked for dealer sales events around the United States and now stays local as a sales and leasing consultant for a dealership.