The term, down payment, in a car lease is called “capitalized cost reduction” or simply “cap cost reduction.”

A down payment is often optional in car leases. It serves to reduce the amount financed with the lease and, therefore, reduces the monthly payment amount. It is not a deposit that gets returned later.

Down payment is often confused with security deposit — two very different things. Down payment reduces the amount you owe on a lease, which reduces your monthly payment amount — and you don’t get it back at the end of the lease. However, a security deposit is returned at the end of a lease, assuming there are no charges or fees to be deducted.

If you choose to pay no money down, you also don’t pay sales tax on that amount. However, your monthly payment will be higher than it would be with a downpayment. Cap cost reduction is only part of the total amount of cash due at lease signing. Along with down payment will be first month’s lease payment, as well as official fees and taxes.