Capitalized Cost Reduction

Capitalized Cost Reduction is a term used in car leasing that refers to any cash the leaseholder may pay up front such as a down payment, trade-in credit, or rebate.  The capitalized cost reduction payment decreases, or reduces, the total amount being financed via the lease.  Any capital cost reduction payments will serve to reduce the monthly lease payments by reducing the net capitalized costs where:

Net Capitalized Costs = Capitalized Costs - Capitalized Cost Reduction

The difference between net capitalized cost and the residual value is used to calculate the monthly lease payments.  Including a capitalized cost reduction payment is one way for a leasing company to make monthly lease payment look more attractive to potential leaseholders.