Tips on Buying Cars/cap cost reduction (down payment) on leased car
I've never leased and would be able to put down at least $5K to get lower payments (vs putting down next to nothing and having higher payments). But I read that any down payment you make would be lost if you total the car (wouldn't it still be lost if you are buying/financing it??)... this is what I read...
"Remember that when leasing, you do not own the car. Thus, if you make a cap cost reduction, you are making a down payment on property that is not yours. Never do that -- no matter how much the dealer wants you to, and no matter how much it reduces your monthly payments -- for in the long run, you are throwing your money away. And the run might not be so long, either: Steve leased a $25,000 car and paid $3,000 in cap costs. Two months later, he totaled the car. Since he didn't own the car, his insurer repaid the dealer $22,000; Steve lost his $3,000.
Paying cap costs is a waste even if you donít wreck the car. Why? Because the only reason dealers want you to pay it is so they can offer you a monthly payment that sounds really low."
Since I can afford a large down payment, the idea of not having the obligation of high monthly payments still appeals to me.
Your feedback is appreciated.
"Should you put money down on a lease?" is a great question. Another great question is "Do you lose the cap cost reduction?" Placing a cap cost reduction on a lease, is a matter of monthly payment choice. If you put five thousand dollars down in Cap cost reduction, on a 36 month lease, you would lower the monthly payment by approximately One hundred thirty five dollars a month.
If you have an insurance loss and also have a good, reputable. insurance company, you would lose your cap cost (down payment) payment at a rate similar to a purchase. The person you spoke of in your question would have received less then what he paid if it was purchased vehicle, as well. He might have also lost the sales tax if he purchased. Remember part of what he did not receive may have been his insurance deductible.
That person could have asked for a replacement vehicle and continued the lease. If not continuing the lease, I think he should have received a prorated amount of his cap cost reduction but some loss in that example would be common in any case. Who was at fault in the accident might have a bearing on what a person collects. I am not an insurance expert but I have been involved in the leasing of thousands of vehicles
In response to the question "Should you put money down on a lease?" It is a matter of choice. It's "Six of one and a half dozen of the other."
I don't put money down on a lease or a purchase, if I can avoid it. No money out of pocket makes it easy to track my total cost plus I keep that down payment money in my investments. On the other hand, if you want a low or specific monthly payment, Cap cost reduction is a great benefit.
If you have a vehicle to trade in, the difference between what you owe on it and the trade in value, is a cap cost reduction. Many people do not realize that you could ask the dealer to buy your trade for cash and you keep the difference between what you owe and what it's worth. In this case you would lease without any cap cost reduction being applied and pocket the trade in equity
I think there is a lot more protection with a lease then you have with a buy. Resale value being the biggest.