What is the disposition fee at the end of a car lease?

This is part of our Car Buyer’s Glossary series breaking down all the terms you need to know if you’re buying a new or used car from a dealership.

Your lease is over, and you’re back at the dealer to return your car. You know that it’s in good condition and you haven’t exceeded your mileage limits. But now you’re asked to pay $300 to $400 for something called a disposition fee. What the heck is that?

Great question. What is it? And why should I pay it?

You might not have to. But first, here’s what’s going on. The disposition fee is a flat fee charged at the end of the lease by the leasing company. It’s intended to cover the costs of reselling the car. It’s almost unavoidable.

Almost?

Yes. There are a couple ways to avoid this fee. For one, you could buy the car for the residual value. Since you’re buying it right then and there, there will be no reselling costs, and the fee should be waived.

The other way is to take out another lease from the same dealership, a likely but not assured way to avoid the fee. The leasing company is making money off you leasing the car, so keeping you as a continuing lease customer is in their best interest.

That seems straightforward enough. Anything else I need to worry about?

If you’re concerned about end-of-lease fees, make sure you really understand the mileage and excess wear parts of your lease agreement. Read it carefully. These fees can add up! But if you’re walking away from your lease, the disposition fee is just part of doing business.

Is there anything I can do to avoid dropping a few hundred dollars at the end of my lease?

The disposition fee isn’t usually negotiable, but you can ask. You can also roll it into the capitalized cost of the vehicle, raising your monthly payment a little bit but spreading the pain out. You’ll pay interest on the fees you’ve rolled in, but it won’t be significant … we’re talking an extra $11 or so dollars a month. If you don’t plan on buying the car or getting a new lease, and you know that up front, rolling the fees into the lease might work for you.

Thanks!

You bet.