What You Should Know about Car Lease Fees

If you like to change cars frequently, the idea of leasing a car could be pretty appealing. When you lease a car, you can get a new vehicle every few years without applying for a new loan or making a large down payment. Of course, this doesn’t mean that you can sign a new lease for free, as you’ll still end up paying some money before you leave with your newly leased car.

Depending on the fees, leasing a car can still be a great option. In fact, you might pay a lot less with these fees than you would if you decided to finance a new car. Each lease has different costs, and it’s a good idea to be aware of these fees before you start the leasing process. In fact, you’ll probably be asked to pay these fees when you first sign your paperwork.

If you’ve never leased a car before or you want to understand the process better, you’ll want to learn more about the specific car lease fees you may have to pay when you sign your contract. With this information, you can make sure that you know how much it costs to lease a car before you go through with a deal. This information will ensure that you’re making the best financial choice when you decide to lease a car.

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How Does a Car Lease Work?

When you lease a car, you agree to borrow it for a specific period of time. You’re paying a fee to use the car, but you don’t own it. Instead of paying to finance a car, you’ll sign an agreement to make monthly payments to use the car. Your lease includes other parameters, such as how many miles you can drive each year. At the end of the lease, you can return the car or buy it.

How Is a Car Lease Different from Financing a Car?

When you finance a car, you’re borrowing money to own the car. You must pay for the car in full, and you’ll make monthly payments until the value of the car is paid off. You’ll pay not only the price of the car but also interest and other fees that go with vehicle financing. When you pay off the loan, you’ll own the car.

Leasing a car is different in that you only pay for the depreciation of the car you lease. You’ll still pay a money factor, which is similar to an interest rate, but you only pay for the car until the end of your lease term. At the end of the term, you’ll return the car and be free of the monthly payments.

What Fees Does a Car Lease Include?

When you sign a car lease, you’ll notice a detailed summary of the fees you need to pay. It’s important that you read these documents carefully, as they’ll list exactly which fees you need to pay over the course of the term. These are some of the fees you’ll probably notice on your documents:

Down Payment

Whether you lease a car or finance one, you’ll probably have to put money down. The more money you put down on your lease, the lower your monthly payments will be. If you pay significantly less on your down payment, your monthly payment will increase.

In fact, some people are able to negotiate for no down payment at all. Others put down several thousand dollars to save money on monthly payments.

Security Deposit

The security deposit for a leased car is a lot like the security deposit you’d pay on a rental home. This fee covers any damage to the car, like upholstery tears or exterior dents.

If you return the car at the end of your lease and it has no damage, you’ll get the security deposit back. In many cases, the deposit is the same as one month’s payment, but this can vary based on the vehicle.

Acquisition Fees

Your lease may also include an acquisition fee, which is usually a few hundred dollars. This fee is typically combined with the down payment to cover all the paperwork the dealership completes during the process. This fee can vary based on the dealership, and it may include a separate documentation fee to cover these costs specifically.

Disposition Fees

The disposition fee is a charge the dealership adds to the end of your lease. This fee is meant to help the dealership sell the vehicle when you return it. It covers cleaning and repairs required to make the car desirable. The disposition fee typically costs the same as one month of leasing the car, but it may also cost a little more. You can ask about this fee when you sign your lease, or else you might see it pop in near the end of the lease term.

Sales Tax

Even though you’re not purchasing the vehicle, you’ll be required to pay sales tax for the transaction. The specific rate you pay varies from state to state, but it should clearly state the amount of tax you pay in your lease paperwork. The county or city can add more taxes too. These taxes can be added to your monthly payments as well as required as a lump-sum payment when you sign your lease.

State Registration Fees

Before you leave, the dealership might also have you pay for your vehicle’s registration. Each state has different registration fees, so this fee can vary from place to place. While some states might charge as little as $50 to register a car, other states charge several hundred dollars for the first year of registration.

Monthly Payments

When you sign your lease, you’ll also get to see your monthly payments. This is simply the fee you pay to use the car throughout the term of your lease. Your payment will vary depending on the vehicle you want, and it will reflect the value of the car in addition to the car’s depreciation over the course of the term. The figure isn’t fixed. You can reduce your monthly payment by paying more upfront or by trading in your old vehicle.

Wear and Tear Expenses

While you may not necessarily know what kinds of costs to expect in terms of wear and tear damage until the end of the lease term, you may pay some of these expenses upfront. These expenses cover a variety of things that could happen to your car, including windshield cracks, body dents, upholstery tears, stains, and worn tires.

During the course of your lease, other expenses may arise. For instance, you may have to pay the full cost of car repairs. In other cases, they may charge you a specific fee if the car does need repairs. No matter how well you drive or how well you take care of your car, these little expenses can pop up out of nowhere.

Mileage Charges

When you sign your lease agreement, you agree to drive your car a set number of miles each year. For example, your agreement might give you 12,000 miles you’re able to drive each year.

At the end of your lease, you may be required to pay an extra fee if you go over this set mileage. Pay close attention to the cost per mile when you sign your lease. For example, the paperwork might specify that you owe 12 cents per mile over the limit, but some leases might require over 25 cents per extra mile.

Contract Termination

In the event that you need to terminate your contract, you’ll pay an extra fee. Whether you have to move away or you’ve lost your job and can’t pay the lease, you’ll pay one fee to end the contract. The termination fee varies but can actually cost as much as the whole lease.

There are some ways to avoid paying hefty termination fees. For example, you may be able to find somebody who is able to take over your lease for you. In other situations, dealerships offer a special insurance policy that covers your lease if you have to walk away from the agreement.

The Benefits of Signing a Car Lease

While all these fees can certainly add up, signing a car lease is a worthwhile venture for many shoppers. If you’ve found a car that you love but you don’t want to make a long-term commitment to one vehicle, a lease is a great option. These are some benefits of signing a car lease, no matter the fees:

You Can Drive a New Car

When you lease a car, you may be able to afford a brand-new car that you wouldn’t want to finance otherwise. If you want the latest model but don’t like the price, you can pay much less to lease the car for a couple of years.

This also means you can have all the newest safety features without paying the price they normally cost. This can be especially helpful if your credit score isn’t high enough to get a low interest rate on an auto loan.

In some cases, the prestige of a new car is a requirement for work. For example, you may be a real estate agent who needs to transport clients to different properties. You can lease a new car that impresses your clients, which is easier than buying a new car every year.

You Don’t Have to Pay for Repairs and Maintenance

When you lease a car, you don’t have to pay for maintenance or repairs like you would if you owned the car. Since you’re leasing a brand-new car, repairs are highly unlikely. The main expense you have to pay is for light maintenance, including oil changes. In most cases, the lease will be over by the time your vehicle needs extensive work.

Your Monthly Payments Might Be Lower

Whether you finance or lease a vehicle, you’ll have a monthly payment. If you purchase the same vehicle with a loan, you’ll likely pay more per month than you would with a lease. Additionally, you may have to make a larger down payment if you buy the vehicle compared to if you lease it.

The Downside of Leasing a Car

As you can see, leasing a car comes with several fees. At the end of your lease term, you may have spent nearly as much as somebody who financed a vehicle, but you don’t own the vehicle. You have to return it at the end of the lease or choose to spend more money to own it outright. If you’re set on owning a vehicle, leasing isn’t necessarily the way to go.

Lease a Car With Caution

As you look over the fees associated with leasing a car, you might realize that it’s more expensive than you thought. You’ll pay a lot more than just a monthly fee, and the upfront costs can be more than you expected. In fact, even if you plan to lease a car on a deal that required no down payment, you could still end up paying other fees on the day you take the car home. You likely won’t get away with not paying anything on the day you sign your lease.

When you read your lease or any other documentation about leasing a car, you can look for the amount that you’re required to pay at the time of signing your lease. This is the fee that you have to pay before you can even take the car home. The dealership can toss other fees into your monthly payment. Some fees will be due at the end of your lease term. It’s always helpful to review this information before you sign any paperwork to ensure there are no surprises when you start paying your monthly lease.

Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.