To understand how your down payment affects your monthly car lease payment, you first need to familiarize yourself with the different components that make up your down payment. Many people falsely assume that the total sum of money that they pay during the signing of the lease is used towards reducing the monthly car lease payment. This is far from true.
The portion of your down payment that is used toward the reduction of your monthly payment is called the cap reduction or capitalized cost reduction. So when one asks how the down payment changes his/her monthly car lease payment, it is essentially the cap reduction that is causing the change in his/her monthly car lease payment. The higher the cap reduction, the lower your monthly lease payment will be.
If you observe the section of your car lease agreement that provides a break down of the different fees that make up your “total amount due at lease signing,” you will find that the cap reduction is just one of multiple different fees. Some of the other fees include the first month payment, title fees, registration fees, and document preparation fees. I have scanned a sample section of this lease agreement for you to observe. Here, we see that the total due at signing was $1500 and the capitalized cost reduction was a total of $823.61. Again, this means that $823.61 went toward reducing the selling price of the car, which lead to a lower monthly car lease payment.
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