Capitalized Cost of a Lease

The capitalized cost, sometimes referred to as the “negotiated cost” or “lease price,” is essentially the agreed upon value of the car between you and the dealer.  The capitalized cost of the vehicle is negotiable, and you must fight to get the price down if you want a good deal.  Many things in life aren’t negotiable, so you need to take advantage of those that are.  Typically, you use the “dealer invoice” as a starting point and begin working on a suitable purchase price.  Keep in mind that you can bid below the dealer’s invoice, because after factory-to-dealer rebates and incentives, their actual cost is lower than the invoice they show you.

Once you’ve agreed upon a capitalized cost for the vehicle, you’ll have to take into account any add-ons or reductions, which once factored in, make up the net capitalized cost of the vehicle, or the actual amount being financed.  Anything that lowers the amount being financed is known as a cap cost reduction.  Examples include down payments, trade-in credit, dealer rebates, and more.

Conversely, the net capitalized cost of the lease will increase with financed add-ons, such as extended warranty, trade-in loan balance, title and registration fees, documentation fee, lease acquisition fee, taxes, etc.  Some of these items are negotiable, some are not.  If the lease acquisition fee seems high, ask them to lower it.  It’s basically their commission, so it’s flexible.  Also ask the dealer to waive fees for things like the credit report and other documentation.

Tip: It’s important to negotiate the price of the vehicle before mentioning things like a trade-in or a down payment.  If you mention these upfront, the salesman may not give you the full value, making the deal a lot less sweet.

Think of it this way.  If you go down to the dealer and tell them that you have nothing to put down and no trade-in, the salesman will try to entice you the best-sounding deal possible.  And once you agree on a price, then you can mention a possible trade-in or down payment, and lower that price even more.

If you were to bring up those cap cost reductions initially, the salesman may have diminished their value, knowing he or she could lower the price enough to work out a deal you would accept.

Example of a dealer offer:

Vehicle Price: $40,910.00  <——————— MSRP
Preferred Customer Discount: – $3,927.00   <——- Cap Cost Reduction
Selling Price: $36,983.00  <——————— Capitalized Cost
Tag/Registration Fees: + $282.00
Tire/Battery/MVWEA: + $8.75
Flat Add/County Fee: + $22.00
Other: + $28.00
Documentation Fee: + $55.00
Balance Due: $37,378.75 <——————— Net Capitalized Cost

Remember, the lower the net cap cost, the lower the monthly car lease payments will be.  Find a car with a high residual value, and you’ll get the most bang for your buck.