Pros and Cons of putting money down on a lease

Can someone please explain? What does happen if the car is totaled even out of the lot? Why is any money you put down “lost”?

Gap coverage essentially covers the vehicle up to the current owed value and doesn’t factor in previous payments, so if you lease the vehicle and drive it off the lot, it’s going to be worth a lot less than if it was new.

Let’s say you drive off in your shiny new car that cost $50k. Now that it’s used, the value is $45k. A week later, you total the car.

If you had only made one $500 payment, the buy out value is $49500. If you had put $4k down, the buy out value is $46000. Both of these are above the $45k market value, so gap kicks in and covers the delta between the market value from insurance and the buy out value at the time.

In the first case, your week cost you the $500 first month’s payment. It’s gone for ever, but it’s only $500.

In the second case, it cost you $4000. Either way, you’re never seeing the money you paid up front, but you can minimize it as much as possible.

The downside is that you’re paying interest in the form of rent charge on however much you would have put down. On a lease with a really high MF, this can cost you as much as a couple dollars a month. If that $50k car was an Acura with a MF of .00225, the $3500 delta in down payment amount would cost you about $8/mo. If it was a BMW at current buy rate, it’d be more like $4/mo. Get something with a really low MF and it’s practically free insurance.


Thank you @mllcb42 !