Offer as little of a down payment as possible when leasing your vehicle. If your vehicle is declared a loss by your insurance company, you'll lose any monthly payments or down payment that you put toward the lease. However, if you want to lower your monthly lease payment, you may have to provide a down payment to do so.
Vehicle Loss
While leasing a vehicle, your bank requires that you maintain a full-coverage insurance policy over the term of your contract. This policy pays for vehicle repairs or its market-value to your bank if you should incur damages or a complete loss. Your leasing bank is your insurance policy's loss-payee, meaning that any insurance payment goes to the bank and not you. Any down payment or monthly payments that you provide are lost if your vehicle becomes a loss, even if you paid your entire lease cost upfront. For this reason, you should provide as little down payment as possible.
The Purpose of Gap Insurance
Leasing banks also require gap insurance. If your vehicle was declared a loss, you'd become responsible for paying the bank for the vehicle's total value, not just the lease amount if your insurance company's payoff did not satisfy the bank's total cost. While this may seem like good reason to offer a down payment, it isn't because of a leasing contract's gap insurance requirement. This policy pays for the gap between the bank's actual cost and your insurance payoff. Even with no down payment at all, gap insurance will pay the remaining balance due.
Meeting a Budget
If you have a strict budget, you may have to provide a down payment to reach your target monthly payment. If you saw a lease advertisement with a low monthly payment, read the fine print. Lease advertisements are figured on a best-case scenario, which assumes the best mileage, term and down payment amount to reach a low monthly payment. Taxes and fees are often excluded from the down payment amount, which may cost around $1,000 or more. The impact that $1,000 has toward a lease is about $30 per month, so choosing not to provide a down payment may substantially raise your monthly payment amount.
Negotiating
When leasing a vehicle, your leasing bank pays your dealership for the car's total cost. Leasing can prove profitable for dealers because many lessees do not negotiate vehicle pricing, meaning the dealer sells his car for full sticker price. You can minimize your down payment amount and still lower your monthly payment by properly negotiating your vehicle's price before you lease it. Negotiate the price of your leased vehicle the same you would if paying cash or financing. Doing so can minimize the down payment you'd have to provide to reach a target monthly payment.
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