Why " 0 Down" may not be "0" at all !

The word “down” can mean a lot of things. First and foremost it is a direction, it can be the amount of money that you pre-pay on a loan to get the monthly payment that you want or the word can also mean goose feathers, which as we all know is referred to as “down”!


So what can “0 Down” mean on a lease?


For me to explain to you I have to first tell you about how a lease works. A lease is not like a “buy”.


On a financed “buy” you finance the vehicle at the price you pay less whatever you put "down" in cash. You can trade it in at any time without a “pre-payment penalty” and you own the car. You can drive any number of miles you wish. The money you put “down” is the money you are using to decrease your total loan amount and therefore your monthly payment.


A lease is different. The leasing company actually “owns” the car. You have a negotiated price that the vehicle is being “sold” at (the capitalized cost) and you have a value at the end of the lease (the residual). Your payment is calculated on the capitalized cost minus the residual and  then a finance fee is added on. At the end of the term you have to return the car and there is no easy way of terminating the lease early. You can only drive a certain number of miles and if you go over there are fees at the end.


Again, when you have a lease you pay to use the car, to not own it. You pay for its depreciation monthly plus a finance fee. Simply stated the capitalized cost minus the residual is the amount the car is depreciating over the lease term.


Figure it this way, if you had a $30,000 car that had a 50% residual at 3 years, the depreciation is $15,000 which is what you will pay over time in your monthly lease fee ($15,000 / 36 = $416) plus a monthly finance charge. Get it?


So how is “down” different on a lease?


"Down” can mean just the money you are required to cough up to reduce the “capitalized cost” of the leased vehicle! Not all of the charges! You can be handing them a big check for lease origination fees, payments upfront, taxes and other big charges that could amount to thousands of dollars! IF NONE OF THOSE DOLLARS ARE GOING TO REDUCE THE “CAPITALIZED COST” THEN THERE IS TECHNICALLY “0 DOWN”! The cash is still coming out of your pocket but this is not considered to be money "down".


Add to this that the lease ad fine print may say that you have to be a recent college grad, currently in the military and driving a leased vehicle now to qualify for the lease. Additionally you may have a "termination fee" at the end even if you are under the allowed miles. They can still claim "0 Down".


My point?


Call the dealer and find out what his definition of “0 Down” means in his ad. Get him to speak English, not “dealer-talk” and if his definition is “goose feathers”, run!