What Does A “Zero-Down Lease” Really Mean?

When you’re looking for the best deal on a car lease, probably nothing gets your attention so fast as a declaration of “$0 down.”

Have you wondered if zero-down lease offers are too good to be true?

In fact, zero-down leases are legitimate deals offered by many companies, including Capital Motor Cars. For leasers who qualify, they can make it easier to finance a lease.

To understand what “zero-down” actually means, you’ll have to understand how lease payments work. This knowledge will help you find and negotiate the best lease deal on the car you want.

What do you actually pay for in a lease?


Negotiating a car lease is complicated and can be very confusing, especially because most people don’t understand the terminology and calculations that determine what they’re going to pay. This makes it easy for customers to get lost and taken advantage of while negotiating.

As a consumer, you should know what’s going into your lease contract.

The total cost of the lease – what your down payment and monthly payments will cover over the lease period – is known as the capitalized cost or cap cost. This includes:

  • Depreciation. The bulk of your monthly payments are covering the depreciation of the car, or its loss in value over time. This is based on the residual value of the vehicle, what it’s predicted to be worth at the end of the lease period. For example, if a car is worth $30,000 but in three years it will likely only sell for $20,000, your monthly payments will have to cover the difference ($10,000) over three years.
  • Fees. Bank fees, DMV fees and documentation fees will all factor into your bills, either upfront or as an addition to your monthly payment. (The second option is known as a “sign and drive” deal.)
  • Interest. The interest rate, often called the lease factor or money factor, is based on your credit score. It varies between leasing companies, but expect anywhere from 2-5% for strong credit, to 10-15% for poor credit.
  • Taxes. In most states, you will pay taxes only on your monthly payments, not the value of the car. This helps make leasing more affordable than buying. However, you might also have to pay taxes on whatever you pay upfront.
  • Down payment. Finally, some lease contracts will ask for a certain amount of money upfront: a down payment or cap cost reduction. This payment goes towards what you will have to pay every month during the contract.

What “zero-down” really means

A zero-down lease offer means simply that there is no down payment.

However, it doesn’t mean that you can show up without a penny. You will still have to pay something out of pocket: taxes, fees, and possibly your first monthly payment.

Zero-down offers take a few different forms. You might have to pay fees and the first month upfront, or just fees. In some case, even fees will be rolled into your monthly payments.

Should I look for a zero-down lease deal?

“No money down” sounds great, but is there a catch? Do these deals really save you any money or trouble?

In reality, zero-down leases can be a great option, if you know what you’re getting into and how to negotiate a good deal.

Benefits of a zero-down lease

For starters, you’ll have to pay much less upfront. This could mean the difference between having to borrow a big chunk money to start your lease, and just filing monthly payments as you go.

This is the big reason why zero-down offers are so appealing to many people!

You’ll also pay taxes at a much slower rate. You’ll be taxed a small amount on each monthly payment, instead of adding a bigger tax payment to your upfront expenses.

Finally, you’re less at risk in case of an accident.

Since the leasing company holds the title to the vehicle, any insurance payments go to them if you total the car or it gets stolen. This would also mean the end of the lease contract, meaning your down payment is lost forever, even if the accident is on your way home from the dealership.

Drawback of zero-down

This said, zero-down deals have their drawbacks. Otherwise, would any ever choose a deal with a down payment?

The initial down payment usually would offset the total cap cost that your payments are covering every month. So if there’s no down payment, you’ll end up paying more every month.

For example, consider a lease offer at $250 per month with $2,000 down. If you take the same car as a zero-down lease, that $2,000 will be rolled into your monthly payments, so you’ll be looking at more like $300 per month before interest and taxes.

It still might be easier for you to handle than a hefty down payment, but higher monthly payments also means higher interest and taxes. Taxes over the lease period might add up to more than if you had given the down payment.

Zero-down deals can also be hard to actually get. They’re a flashy way to bring consumers through the door, but they’re usually only approved for people with excellent credit scores.


A promise of $0 is hard to ignore.

The good news is that these offers are really out there and they can take a lot of the pressure out of signing a lease.

The bad news is that you might not qualify for one, and if you do, you’ll get higher monthly payments.

However, that might not be such a price to pay to avoid taking out a loan or whatever you have to do to finance a few thousand dollars upfront.

At Capital Motor Cars, we offer many zero-down leases on popular cars and SUV’s. We find that these deals make it easier for many our clients to Get Started on their lease. Contact us and we’ll work with you to help formulate the best deal for your budget.

Residual Value: What You Need To Know Before You Lease a Car
5 For 5: Best Zero-Down Lease Deals For May 2018