Deal Pack Blog
Capitalized Cost and How It Relates to Lease Here Pay Here
Capitalized cost, commonly referred to as “cap cost” by most leasing dealerships is the amount to be financed in a lease. We can arrive at this number by taking the agreed upon price of the vehicle plus any additional fees or taxes not included as part of the cash due at signing. As it pertains to auto leasing, gross capitalized cost will be the sum of everything included in the capitalized cost whereas the net capitalized cost is what remains after all cap cost reductions have been subtracted from the gross.
Capitalized cost reductions are cash down payments, trade-in allowances, and any other dollar amount that serves to reduce the gross capitalized cost. This has the same effect as a cash down payment when financing a retail loan – it reduces the amount to be financed. Security deposits and any additional fees collected at signing should not be a factor in calculating the net cap cost as they do not impact the calculation of the monthly lease payment.
As a rule of thumb, in calculating the monthly payment on a lease the lower the net cap cost the lower the monthly lease payment. The higher the net cap cost the higher the monthly lease payment. Residual value can also play a big part in the monthly payment amount. Assigning a higher residual value will reduce the amount of rent charges calculated on the lease, resulting in a lower monthly payment. In contrast, a lower residual value would result in a higher payment amount.