CAP cost, also known as Capitalized Cost refers to the amount that is being financed with the lease. The lower the CAP cost, the lower your monthly lease payments.
How is CAP cost calculated?
Dealers usually adjust the CAP cost of the vehicle on the basis of incentives and rebates available. The down payment and trade-ins reduce the CAP cost too. Usually, a vehicle that retains its value has a lower CAP cost as compared to the one that can significantly depreciate over the lease period. That’s why the highly priced vehicles are often cheaper to lease since they retain their value over the life of the lease. For instance, a $40,000 car that depreciates by 50% in 3 years has a residual value of $20,000 at the end of the lease period. On the other, a $40,000 car that depreciates by 35% over 3 years has a residual value of $26,000. In the first case, your CAP costs will be $20,000 and in the second case, your CAP Cost will be $14,000.
Why does CAP Cost count?
The gross CAP cost in the lease is the factor of the retail value of the vehicle plus sales tax. The lower the car’s retail price, the lower your CAP cost. When you are leasing a car, it is important that you negotiate the final value of the car just as if you are planning to own it. If you are able to successfully negotiate the retail price of the car, you can reduce the monthly payments regardless of the car’s residual value and trade-in value.
Negotiate to get the best CAP cost
Before negotiating, remember that you want the lowest CAP cost and highest residual value possible. Also, the best car is the one that can retain its value over the lease period. If you end up liking two cars that cost the same, choose the one that depreciates less since you will be paying less.
Here are some questions that customers usually have in mind when they wish to get the best deal:
• Should I make the down payment?
If you can avoid paying the down payment, then avoid it. However, remember that making the down payment means your monthly lease payment will reduce.
• Is there a way I can get a better deal if I wait until the end of the model year?
Yes, there are chances for this to happen because plenty of dealers want to clear their lots just to make room for new models. When you are leasing a car, you are looking for the most favorable relationship between the CAP cost and the residual value of the car. That means the car that is ready to leave the lot at the end of its model year will depreciate faster than the car that you will lease at the beginning of its model year. So, if you want to find the best CAP cost, go for the new cars.
Read ‘Chapter 5’ for more details and get resources from where you can get a competitive price for your car. Don’t forget to negotiate the sale price if you want to pay a reduced final monthly payment.
