Should You Make A Down Payment When You Lease?

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“Should I put money down on a lease?”

That’s a great question.

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Traditional car buying advice suggests consumers should make a hefty down payment. That advice makes sense for several reasons. Most importantly, making a large down payment lowers your monthly payments, making your car payment a much smaller expense in your monthly budget. Here are some other added benefits of a large down payment; minimize interest charges, greater chance of your loan being approved, and better interest rate.

But (and there’s always a but!) if you’re leasing a car, there are also several reasons to put down as little money as possible.

Our Advice

While most dealerships will recommend that you make a fairly large down payment on a leased vehicle, I’d advise you to avoid leasing a car the requires a large deposit or initial payment. Although making the down payment will certainly reduce your monthly payments, if the car is totaled, your down payment is completely lost. Even if you have top of the line collision insurance and gap coverage, you will not be reimbursed for a single dollar of that hefty down payment.

If you are considering contributing a down payment because you want to lower your monthly payments in the event that your monthly budget tightens at some point, here’s a popular option… Take the $3,000-$5,000 you planned to use for a down payment and deposit it into a separate savings account. This way, even if you experience some sort of financial hiccup, you have a reserve fund to cover your monthly payment.

PRO TIP: Limiting the amount of money you allocate to your down payment also allows you to be more realistic about what you can and cannot afford. If there’s a car you really want (we’ve all been there) but you think it’s outside of your budget, the smart decision is to shop for a cheaper option. However, in some cases, consumers trick themselves into believing they can afford this pricey vehicle by shelling out $5,000 up front in order to secure a reasonable monthly payment.

While a “low” monthly payment sure is nice, there’s a good chance you put yourself at risk by coughing up $5,000 just to reduce your payment. At the end of the day, whether you spend the money now, or you spend it later, you’ve paying the same amount of money for the car. But as we’ve established above, bypassing a large down payment protects you in the event your car is totaled — and it helps you keep some cash on hand, should you need it in case of an emergency.

Questions or comments? Feel free to drop a line in the comment section below!

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Lisa Brown

Lisa Brown

I've spent the past 5+ years as a freelance writer covering personal finance and tech. Originally from Texas, but happily living in New York City. Making money is the easy part, keeping it is very difficult!

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