Capitalized Cost Reduction

AAA

DEFINITION of 'Capitalized Cost Reduction'

Any upfront payment that reduces the cost of financing. Capitalized cost reduction is generally associated with the purchase or lease of an automobile, and reduces the monthly payment owed if the vehicle is financed. Reductions can be made from cash, the value of a trade-in vehicle or through rebates.

BREAKING DOWN 'Capitalized Cost Reduction'

A capitalized cost reduction for a car is similar to a down payment on a home. The higher the upfront money put against the value of the good being purchased, the lower the remaining balance requiring finance will be.

Monthly lease payments are calculated by taking the net capitalized cost (capitalized cost - capitalized cost reduction) and subtracting residual costs.

RELATED TERMS
  1. Minimum Lease Payments

    The lowest amount that a lessee can expect to make on a lease ...
  2. Lease Payments

    A line item under long-term debt on a balance sheet that indicates ...
  3. Lease

    A legal document outlining the terms under which one party agrees ...
  4. Down Payment

    A type of payment made in cash during the onset of the purchase ...
  5. Lessee

    The person who rents land or property from a lessor. The lessee ...
  6. Lessor

    The owner of an asset that is leased under an agreement to the ...
Related Articles
  1. Personal Finance

    Top 10 Ways To Get Top Dollar For Your Car

    Find out what steps you can take to reduce the depreciation of your vehicle.
  2. Home & Auto

    Did You Buy A Lemon?

    Find out how to fix a sour deal on your car purchase.
  3. Home & Auto

    Wheels Of A Future Fortune

    Buy a quality car without driving your expenses through the roof.
  4. Home & Auto

    New Wheels: Lease Or Buy?

    These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you.
  5. Options & Futures

    Top Tips For Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares US Real Estate

    Learn about the iShares US Real Estate fund, which holds shares of equity and nonequity real estate investment trusts incorporated in the United States.
  7. Credit & Loans

    Schedule Loan Repayments with Excel Formulas

    Calculate all the particulars of a loan using Excel, and set up a schedule of repayment for a mortgage or any other loan.
  8. Home & Auto

    When Getting a Rent-to-Own Car Makes Sense

    If your credit is bad, rent-to-own may be a better way to purchase a car than taking out a subprime loan – or it may not be. Get out your calculator.
  9. Credit & Loans

    What Qualifies as a Nonperforming Asset?

    A nonperforming asset is a loan made by a financial institution to a borrower who has failed to make any scheduled payments for at least 90 days.
  10. Credit & Loans

    Avoiding Red Flags with Online Mortgage Lenders

    Using an online mortgage lender can be convenient, but how do you know you can trust one? Follow these tips to make sure the lender is legit.
RELATED FAQS
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  3. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>
  4. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
  5. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
  6. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!