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What is a Capitalized Cost in a Car Lease?

Milad Hassibi March 2, 2019

If you are new to leasing a car, understanding the cost that goes into a leasing agreement is essential. Car leases different from lender to lender and calculating the costs is important when finding a good price.

Here we go over the factors that make up the overall cost of a car lease, including capitalized costs.

What is a capitalized cost?

Capitalized cost, also known as “cap cost” in an auto lease, is essentially the value of the car you will be leasing. For a new vehicle, this is often the MRSP. This means the lower the capitalized cost of the car, the lower your monthly payment will be.

A woman signs her car lease with a coin stacked in front of her

The gross capitalized cost will be the total price the car is valued at (cap cost) plus any additional fees on your lease. This will be the overall cost being paid throughout the lease, or the amount of money that is apart of the agreement.

This amount can be reduced with a capitalized cost reduction.

What is a capitalized cost reduction?

Capitalized cost reduction refers to any amount of asset or down payment put down at the beginning of an auto lease. This amount can help to reduce your monthly lease payments and the overall capitalized cost.

This can be financed with any cash, trade-in, or rebate amount depending on the lender. Capitalized cost reduction is not a security deposit you will get back, but rather an investment in the lease that works as a prepayments of the overall cost.

This reduction, or rather down payment, is often required to qualify for a lease. Down payments are especially common for consumers with poor credit, to ensure lenders they are financially stable and have a vested interest in repaying their loan.

Net capitalized cost

Your net capitalized cost will be the final price for a vehicle. After calculating your gross capitalized cost and how much capitalized cost reduction is put down at the beginning of a lease, you can calculate your total cost with this equation:

Net capitalized cost = Gross capitalized cost-Capitalized cost reduction

This can help you calculate how much you will be paying on the overall lease. Understanding this formula is essential to understanding how much financing you are taking on after a down-payment has been made.

Final Note

If you are looking to buy a new car but have less than perfect credit, CrediReady can help. Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!

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