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.

INVESTOPEDIA EXPLAINS '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. Lessor

    The owner of an asset that is leased under an agreement to the ...
  6. Lessee

    The person who rents land or property from a lessor. The lessee ...
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 >>
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. Economics

    What is a Subprime Mortgage?

    Subprime mortgages are offered to borrowers with low credit ratings, usually 600 or below.
  7. Home & Auto

    Strategies To Buy The Perfect Vacation Home

    Ask yourself these six questions to make the right decision about a vacation property.
  8. Economics

    How Does a Lien Work?

    A lien gives a creditor the legal right to seize and sell property, then use the proceeds to pay off a borrower’s debt.
  9. Retirement

    Is Your Mortgage Robbing Your Retirement?

    If you picked the mortgage with the lowest possible monthly payment, you may be blowing what could be your retirement money on mortgage interest.
  10. Credit & Loans

    How Interest Rates Work On A Mortgage

    A step-by-step explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
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!