For example, assume that you want to lease a vehicle but still owe $10,000 on a vehicle you have financed. If you decide to trade in this vehicle and its current value is only $9,000, the $1,000 deficiency can be paid by the lessor and collected as part of your lease in one of 4 ways:

1. You may pay the $1,000 balance as an amount due at lease signing.
2. You may include the $1,000 balance in the gross capitalized cost and pay it up front as a capitalized cost reduction.
3. You may include the $1,000 in the gross capitalized cost and pay it as part of your monthly payments over the term.
4. If you include the $1,000 in the gross capitalized cost, you may pay part of it at lease signing as a capitalized cost reduction and the rest over the term as part of your monthly payments.

A prior lease balance can arise in two ways. First, if your lease is terminated early and you want to lease another vehicle, your prior lease balance is any amount due from the lease that just terminated after the value of the vehicle is credited. Second, if you end your lease at scheduled termination, your prior lease balance is any remaining amount due in connection with the earlier lease (such as excess mileage charges or personal property taxes). Example