Car Lease With No Money Down? No Down Payment?

Zero Down Car Leases

Unlike car loans, most car leases can be obtained with no money down — no down payment. Along with low monthly payments and lower sales tax cost, this often makes leasing a brand new car much more affordable than buying. Whether you need to make a down payment (cap cost reduction) may depend on your credit score (see explanation below).

Shoppers for car leases often have a monthly payment budget in mind. Although this is not an ideal way to negotiate a lease (see Don’t Be a Payment Buyer), dealers can often meet the customer’s payment objective by requiring a down payment. The more down payment, the lower the monthly payment. It doesn’t change the deal; it simply shifts the money from back end to front end.

Why a down payment anyway?

The purpose of a down payment in a lease is simply to reduce the amount to be financed, and thereby reduce monthly payment amount. Generally, monthly payment can be reduced by about $40 a month for every $1000 of down payment. Or, said another way, your payment will be $40 higher per month for every $1000 you do not make as a down payment.

If you don’t make a cash down payment on a car lease, you also save additional cash by not having to immediately pay sales tax on that down payment. The way that sales tax works for leases in most states, you only pay tax on each monthly payment — and on the down payment amount. In states, such as Texas, Illinois, and Georgia, where you pay tax up front on the value of the vehicle, a down payment amount has no effect on tax.

You might still need some cash

Don’t confuse “down payment” with “total amount due at lease signing” which are related but two different things.

Making no down payment on a car lease doesn’t mean that no cash is required at the time of lease signing. Down payment (cap cost reduction) is only part of the total cash due at lease signing. The first month’s payment is always required up front when leasing (lease payments are always paid in advance, which is different than loan payments which are paid in arrears). Furthermore, you’ll also pay official new-car fees for tag, title, and registration charged by your state and county. A dealer collects those fees and passes them along to your local state/county government.

Therefore, in most cases, “zero down payment” doesn’t quite mean no cash at time of lease signing, although some car companies occasionally offer “zero cash due at lease signing” deals.

A real “no cash down” lease

Some car companies such as Honda, Acura, and Chevrolet occasionally offer genuine “zero cash” lease deals, sometimes called “sign and drive” leases. In these deals, there is no down payment, no first month’s payment, and no security deposit — although there still may be official tag, title, and registration fees as is required for all new-car purchases or leases. Even the official fees can often be rolled into a lease so that absolutely no cash is needed up front. The deals we’ve seen have always been excellent deals as determined by the Lease Deal Calculator and Lease Evaluator in our Lease Kit.

Is there a catch to a zero down payment lease?

The only “catch” is that customers may be required to have a good credit score in order to qualify for little or no down payment. Allowing a customer to skip the down payment means the lease finance company must have some evidence (credit history and score) that the customer will reliably make the monthly payments and stick with the lease until its end.

Customers with bad credit, if they qualify at all, might be required to not only make a down payment but also pay a security deposit, which would be returned at lease-end. Poor credit can also mean paying a higher lease finance rate (money factor).

If you think you might want to skip the down payment in your next new-car purchase or lease, it’s advisable that you know your most recent credit score before you visit your local car dealer. Get a Dark Web Scan and your Experian Credit Report for FREE!

Don’t let car dealers know more about you and your credit than you know yourself.

Summary

Zero down payment leases are always possible for any car, although other up-front cash may be required, since down payment (cap cost reduction) is only part of the total amount due at lease inception. Other factors, such as credit score, may determine if a cap cost reduction is required.