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What is Gross Capitalized Cost?

Danielle DeLee
Danielle DeLee

Gross capitalized cost, often shortened to gross cap cost, is a term commonly used in vehicle leasing. It refers to the amount that is financed in the lease before the subtraction of capital cost reductions. It includes the cost of the vehicle, taxes, fees and rent. Gross capitalized cost is used to determine the amount of capital cost reductions and monthly payments that the lessee must pay.

Vehicle leasing has terminology that is different from other forms of financing. Each term, however, has a corresponding concept in the world of traditional loans. Gross capitalized cost is the same as the financed amount of a loan.

Man climbing a rope
Man climbing a rope

Leasing a vehicle is a form of financing. The lessee is using the vehicle for a certain period of time, so in some respects it resembles renting an apartment. Real estate, however, may appreciate in value; vehicles depreciate. This means that the lessee uses up some of the value of the vehicle, which is included in the lease agreement. In effect, the lessee buys a portion of the vehicle equal to the initial value minus the residual value at the end of the lease, so leasing is a type of loan rather than a rental agreement.

Gross capitalized cost includes all of the costs that are part of the lease. The amount of depreciation over the life of the lease, rental fees, acquisition fees and sales tax are all components of the gross capitalized cost. It also includes interest payments on the financed portion of the value of the vehicle; in leasing terminology the interest rate is known as the lease rate or the money factor, and it is usually not disclosed to the lessee. The capital cost reduction, called a down payment in traditional terminology, is subtracted from the gross figure, as are any fees or taxes paid in cash when the lease is signed. The remaining amount is called net capitalized cost, and it is paid in monthly installments throughout the lease.

If you lease a vehicle, you can request an explanation of the gross capitalized cost before you agree to the lease. The dealer will give you an itemized list of the factors that contribute to the amount. One major component of this cost is the cost of the vehicle. Before you sign the agreement, you can negotiate with the dealer about the price just as you would if you were buying the car.

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