Fees You Will Have to Pay When Leasing a Car
A lot of people are confused when they hear "no money down" on a lease, thinking that it literally means you get to drive off with zero initial payment - this is not necessarily true.
The down payment on a lease only makes up one portion of the cash that's due at lease signing.
This is where most people are confused. (Note: Some leases do allow you to roll all fees into the monthly lease payment, but this is not the norm)
Let's take a look at all the fees and taxes you're likely to encounter in a lease:
Sometimes called the bank fee, it's the amount charged by the leasing company to setup the lease. It's essentially another profit source for them in addition to the finance charge.
Acquisition fees usually range between $250 and $1,000 (luxury vehicles are on the higher end).
The acquisition fee can sometimes be negotiable, but it's rare. Often time the fee is added to the Capitalized Cost (price of the vehicle) so that it's rolled into the monthly lease payment. Otherwise, it will be due up front as part of the cash due at signing.
Not all leases require a security deposit, and the ones that do can sometimes be negotiated away. The security deposit is usually equal to or slightly greater than your monthly lease payment and is due at signing.
The security deposit will be refunded back to you at the end of the lease unless you have excessive wear and tear or went over your mileage limit, in which case the appropriate amount will be removed prior to your refund (if you have any left).
We advise you to try to negotiate the removal of this fee if possible - especially if you have good credit or if you have leased from the same company in the past.
If you're lucky, you won't be charged this fee - but most leases do have a disposition fee ranging between $200 and $450. This fee compensates the leasing company for the expenses of disposing of the vehicle after you return it. (Basically the clean up and sale of the vehicle - usually at auction).
If you purchase the vehicle at lease end, you will typically not be charged for this fee.
The down payment is optional in many lease agreements, and we usually advise you not to put a down payment due to the risk of loss if your car is totaled or stolen during the lease term. Some leases do require a down payment - usually between $1,500 and $5,000. Any down payment you provide will lower your monthly lease payment.
In most states, you will be charged sales tax on any down payment you provide.
Documentation Fee, Tag, Title, Registration, and License Fees
Just as in a regular car purchase, you will have to pay the dealer and state licensing fees. Dealer documentation fees can range between $50 and $695. The rest of the fees are official state and local fees that the dealer collects and forwards to the appropriate government agencies on your behalf. These fees are not negotiable, however the doc fees are variable from dealer to dealer and some states limit the amount dealers can charge.
First Month's Payment
Car leasing is similar to renting a house - in that you need to make payments at the beginning of each month. With a car loan, you make payments at the end of each month.
Because of this, the first month's lease payment is usually due at lease signing. This is not technically an additional fee, but it's something that catches people off guard. Sometimes there are lease deals where the first month's payment is waived. This means you get a one month discount - not that the payment gets rolled into future month's payments.
In most states, you only have to pay taxes on a portion of the vehicle (the depreciated portion you use up during the lease). The taxes are included as part of your monthly lease payment so you don't have to worry about paying anything up front.
However, the rules are different from state to state. In Illinois and Texas, you have to pay sales tax on the full amount of the vehicle, and in some states the tax is due up front. These laws are constantly changing so check with your local DMV to find out the particular situation in your state.
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid
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