Should You Make a Down Payment on a Car Lease?

It’s generally accepted that financing a car with a loan requires a down payment of around 10-20 percent at signing. But is the same true for drivers who want to lease their next vehicle? 

Since buying and leasing cars have some key differences — like how depreciation works and how much monthly payments tend to be — they do not operate the same in this regard. Knowing what to expect ahead of time in terms of a down payment will help you get your finances ready to go before you sign on the dotted line.

Here’s more on whether or not you should make a down payment on a car lease.

Differences Between Buying and Leasing: Down Payment Edition

It helps to understand the differences between purchasing a car and leasing to understand why they treat down payments vastly differently. Here’s a basic outline from Edmunds:

  • Lowering monthly payment: Putting money down whether buying or leasing can help lower monthly payments.
  • Total cost of ownership: However, while down payments on a loan lower the cost of ownership by reducing amount of interest owed, the interest rates (called “money factors”) on a lease are nearly negligible in comparison. This means a down payment does not typically affect the total cost to lease.
  • Avoiding going “upside down”: Going upside down means owing more than the value of the car when it’s totaled, stolen or sold. Down payments on a loan prevent this from occurring; leases, on the other hand, require gap insurance to cover the space between the values.
  • Approval: Down payments help with loan approval but leasing approval doesn’t depend on this factor as much.

You’ll also see some lease offers saying something like “no money down” and others saying “X,XXX due at signing.” Say you’re interested in a new pickup truck, so you search RAM lease deals during your research phase. The offers will say up front how much, if anything, will be required at the lease outset.

Be aware every lease comes with fees and taxes, so you should always have some money ready to go before you can drive away in your new leased ride.

The Case Against a Big Down Payment on an Auto Lease

The reasoning for or against making a significant down payment on an auto lease often boils down to one simple question: Would you rather pay the money up front or keep it in your pocket? Most people would rather keep the funds on hand, perhaps to pay for emergencies or gas, than hand them over to lenders right away. This is especially true knowing those funds don’t greatly affect how much you’ll end up paying in interest over the lease or whether you’ll get approved.

Carfax illustrates this principle with a detailed example: You have your eye on a $25,000 vehicle and a choice between two 36-month lease deals. The first costs just under $200 per month and calls for about $3,000 at signing. The other costs $289 per month with no money down. At first glance, the former deal might seem more advantageous as you’ll pay less per month, right?

Well, the total payments on the first deal (with the down payments) comes out to slightly more than $10,100. The latter deal (zero money down) comes out just north of $10,400. That’s a difference of less than $7 per month. However, the $3,000 is yours to keep and utilize if you avoid the down payment.

Should you make a down payment on a vehicle lease? Yes, if it’s required, of course. But if it’s not required or you have the option to pay more than the minimum due at signing, consider holding off for the reasons listed above.

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