Capitalized cost: the lease word for price

Gross versus adjusted

The gross capitalized cost is the negotiated price of the vehicle plus anything rolled into the lease — most commonly the acquisition fee, sometimes taxes or an outstanding balance on a trade-in.

A capitalized cost reduction is anything that reduces it up front: cash down, a manufacturer rebate applied to the lease, or trade-in equity.

The adjusted capitalized cost is what remains, and it is the number your payment is actually built from. Depreciation is the adjusted cap cost minus the residual, divided by the term.

This is where the negotiation happens

The residual is fixed and the money factor is largely fixed. The capitalized cost is the main thing you control, which makes it the number worth spending your negotiating energy on.

Ask for the selling price, not the payment. A dealer quoting only a monthly figure can move the term, the mileage allowance or the amount due at signing to hit any payment you name, without improving the deal at all.

Once you have a selling price in writing, the rest of the lease is arithmetic — and arithmetic you can check yourself.

Watch what gets capitalized

Rolling a fee into the lease rather than paying it at signing is not free: you pay rent charge on it for the whole term. On a $895 acquisition fee at a 0.00185 money factor over 36 months, capitalizing it costs roughly $60 in extra interest.

That is usually a reasonable trade for keeping cash in your pocket, but it should be a decision rather than a default.

Negative equity from a trade-in is the version to be careful about. Rolling several thousand dollars of an old loan into a lease means paying rent charge on a car you no longer have, and it inflates the payment in a way that is easy to miss.

Common questions

What is the difference between gross and adjusted capitalized cost?

Gross capitalized cost is the negotiated price plus anything rolled into the lease, such as the acquisition fee. Adjusted capitalized cost is that figure minus any capitalized cost reduction — cash down, rebates or trade-in equity. Your payment is built from the adjusted figure.

Is capitalized cost the same as the selling price?

Not quite. The selling price is the negotiated price of the vehicle. The gross capitalized cost is that price plus any fees or balances rolled into the lease.

Should I roll the acquisition fee into the lease?

You can, but you will pay rent charge on it for the full term — roughly $60 on an $895 fee over 36 months at a typical rate. It is a reasonable trade for keeping cash available, but worth making deliberately.

Put it to work

Run the numbers on a real deal — with your state's actual tax treatment and security deposits included.

Open the lease calculator →

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