How Zero Down Leases Work [and the Trick to Get One]
Leasing a new car requires a far smaller up-front investment than purchasing one. However, most leases still require you to put down money upfront....unless you know what you're doing.
So do zero down leases exist? Yes, they really do.
The trick is that even leases not advertised as "zero down" can become zero down with some negotiation.
This guide will breakdown how zero down leases work and how you can negotiate a new car lease to avoid putting money down up front.
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Looking for Deals? Here's our picks for the best zero down lease deals this July.
How Does a 0 Down Lease Work?
With a no money down lease, you skip the down payment and roll it into your monthly lease payments. In some cases you can defer all upfront costs, but fees like registration and your first month's payment may be due at signing. More on that later.
But let's start by looking at some leasing terminology.
Key Leasing Terms
- Capitalized Cost: Capitalized cost (or cap cost) is the sales price of a car being leased. It includes the car's negotiated price plus any additional costs that will be financed through the lease. The lower the cap cost, the lower your monthly payments.
- Capitalized Cost Reduction: This is similar to a down payment that reduces the vehicle sales price. The cap cost is reduced by any upfront cash you pay at closing plus the value of your trade-in.
- Lease Term: This is the number of months during which you will have use of the vehicle and will pay an agreed upon monthly payment.
- Residual Value: The residual value of the car is the amount you would pay the leasing company if you decided to buy the car at the end of the lease.
- Depreciation: The reduction in a car's value from the beginning to the end of the lease term. This is calculated as the difference between the cap cost (minus cap cost reduction) and the residual value.
- Money Factor: This is the rate at which you are borrowing money. It's the lease equivalent of the annual percentage rate (APR) when buying a car with a loan.
When leasing a car, the more you pay upfront, the lower you pay in monthly payments. The opposite holds true as well. The less you pay upfront, the more you pay in monthly payments.
By opting for a zero down lease, most or all of your upfront payment (cap cost reduction) is rolled into your monthly payments.
Keep in mind that a 0 down lease does not always mean that you can waltz in empty-handed and drive off in a new leased car. Even with a no money down lease, you sometimes still have to pay for the sales tax, dealership fees, and the first month’s payment. However, it is possible to roll the document and dealer fees into your monthly payment. More on the types of zero down leases below.
Benefits of a No Money Down Lease
So why put zero down on a lease? This type of lease structure is appealing because...
- Less money upfront. Signing a lease with a down payment means that you must fork over cash right off the bat. With a no money down lease, you get to spread the down payment out, so there’s less out-of-pocket cost at the beginning.
- Sales tax is deferred. Typically, you must pay an upfront sales tax when you lease a car with a down payment. For a no money down lease, you will end up paying the same amount in taxes but spread out over time.
- Less risk. If the vehicle is stolen or totaled during the lease period, you will not lose out on the down payment that you made.
Drawbacks of a No Money Down Lease
There are also some downsides to zero down leases.
- Higher monthly payments. Because you are deferring up front cost, your monthly payments will be higher.
- Higher total cost. You must pay interest on the leased amount, which means you will likely end up paying more in total costs over your entire lease term if you put no money down.
Down Payment and Amount Due at Signing May Differ
Your down payment is not the only potential cost when you sign your lease agreement. There are also:
- city/county/state fees
- license and registration fees
- the first month’s payment
- security deposit
- and in most states when a down payment is made, there is an upfront sales tax required
There are big differences in what you pay upfront, so let's take a closer look.
Types of No Money Down Car Leases
There are four primary types of zero-down leases. These are:
- $0 due at signing/ sign and drive. These leases will involve no out-of-pocket expenses when you sign the lease. The car dealer will include the cash due amount into the monthly cost of your lease so that you do not pay anything that day.
- No cap cost reduction. This kind of lease eliminates the down payment, but still includes the first month’s payment and fees.
- No cap cost reduction and no first month’s payment. Most often, you must pay for the first month up front, however, there are some leases that eliminate this requirement. Instead, the dealer will roll your first month’s payment and down payment into the monthly cost, and you will only have to pay fees required by your state at the time of signing.
- No down payment and dealer pays the first month. In rare cases, the dealer or lessor will cover the first month’s payment. You will not have to make a down payment, and the dealer will waive the first month’s payment so that you only have to pay the official fees.
Is a zero down lease the same as a one-pay lease?
No, a one-pay lease is the opposite of a zero down lease. Instead you combine all the payments and make them up front in a single payment to save on interest.
Requirements to Qualify for a $0 Down Lease
Even though dealers and manufacturers promote zero down leases, only certain customers qualify. Your credit score is the key factor determining whether or not you qualify for a $0 down lease deal. Most lenders will require you to be a "well-qualified customer", meaning you must have a high credit score, over 680. Having your credit score at hand will help you know if you qualify for a $0 down lease. Those with poor credit can also consider getting a cosigner that has a better chance of qualifying.
In other cases, you may need a sufficient debt-to-income ratio to cover the expected monthly payments. Manufacturers have different requirements for a debt-to-income ratio, but even with good credit, some may require a fairly high annual income to give you a zero down lease.
How Can You Get a Zero Down Lease?
Here’s how to lease a car for no money down.
Look for Published 0 Down Lease Deals
The first option is to search for advertised 0 down lease deals. Dealerships and manufacturers will usually publish zero down lease deals at the beginning of each month, so your best bet is to look around for those specials. Check out this month’s 0 down lease deals here.
How to Negotiate a Zero Down Lease
The majority of car leases are advertised with a down payment, but yes, you can negotiate a lease to become zero down.
Once you find a good advertised lease deal, the trick is too simply ask the dealer if they will allow it. If you have a good credit score many will accommodate, especially since you'll be paying more interest over the lease term.
Now if the car you want doesn't have a good lease offer, negotiate the sale price first and the down payment last.
You'll get the best deal by getting prices from several dealers and then negotiating over email. Don't tell the dealer you will be leasing up front. After you agree on a good car price, ask the dealer to use that as the capitalized cost of a lease. Then ask if you can roll the down payment into your monthly payments and voila....you've got your zero down lease!
