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Leasing a Car: What Fees Do You Pay at the Start of a Lease?


Leasing a car may sound appealing because it’s a way for you to get into a new vehicle every few years without the high fees and long loan terms that are often associated with financing the purchase of a new car. But leasing isn’t exactly free, and “no money down” doesn’t mean you can get new wheels without paying something.

Leases have many associate costs. And be aware: These costs always happen at the initial lease signing. This article will analyze these costs and what you should expect to pay.

Car Lease First Payment and Down Payment 

Just like a lease on a house or apartment, the vast majority of car leases will require that you make a first payment and a down payment. The first payment is, unsurprisingly, equivalent to the cost of one month’s lease payment. The down payment, sometimes called a capitalized cost reduction, is much like the down payment on a car loan.

But you can help lower your monthly lease payment best by paying up front. A lower down payment creates a higher monthly lease payment and vice versa. Some lease down payments can be zero, while others can be thousands of dollars. This variation often depends on the deal you negotiate and the incentive offered by the manufacturer.

Deposit and Fees

Security Deposit

Like renting an apartment or a house, leasing a car requires a security deposit at the beginning of the lease term. This deposit has the same function as it does in a house or apartment lease in that it covers any damage you may do to your leased car. If you return the car free of damage, you’ll get your entire security deposit back. This fee is usually equivalent to the cost of one month’s lease payment. The security deposit isn’t the only fee you might not be expecting to pay when you lease a car, though.

Acquisition Fees 

Many leases also include an acquisition fee, which a bank charges on every vehicle lease. This $300 to $500 fee can typically roll into your down payment. Your payment can also include a charge called the documentation fee. The doc fee can add a few hundred dollars to your initial lease costs.

Disposition Fees

It’s also worth noting that many automakers charge a fee at the end of a lease. This fee, called the disposition fee, helps the automaker cover the costs of selling a leased vehicle, and it’s usually equivalent to or a little more than one month’s lease payment. Don’t be surprised if this fee shows up at the end of your lease term. Instead, be sure to ask about it before you sign the deal.

Taxes and Registration for Leasing a Car

Virtually all U.S. states require you to pay a sales tax on a leased vehicle. What you pay and when you pay varies. Check the details with your state’s revenue department to understand your tax obligation and avoid any surprises when you sign the paperwork.

Varied State Tax Laws 

Going over lease miles

States vary in the way they tax car leases. Check your state’s laws before you decide to lease a car. The following taxes can be charged and added to your lease agreement depending on the dealership’s location.

  • Amount of the down payment
  • Total of the monthly lease payments
  • Entire value of the vehicle
  • Taxes added to monthly payments
  • Lump-sum tax payment due at signing
  • County, city tax for your specific jurisdiction

State Registration Fees

In addition to a sales tax, you’ll probably also have to pay some registration fees when leasing a car. These can vary from state to state, falling in the range of $50 to $750.

Bottom Line on Fees

Despite many deals advertising zero-down leases, leasing a car can be more expensive than you might realize. There are a lot of upfront costs that you’ll have to pay, even if you’re getting a zero-down promotion.

While you can negotiate some charges, many of these are fixed fees. Always be prepared to pay something when you show up to lease your next vehicle. This fact is true regardless of the car or lease deal. In advertisements, always look for the “cash due at signing” fine print before leasing a car.

Related Leasing Articles:

Resource: See the Autotrader Car Lease Calculator.

FAQ

How much does it cost to lease a car?

Many factors determine a monthly lease payment. The only way you will know your exact monthly payment is to sit down with a dealer or leasing broker and have it calculated.

Read the fine print in lease promotions to get an idea of how much money you’ll need at lease signing. Often, that figure includes any down payment, security deposit, and first month’s payment. You will also need to pay documentation fees and financing charges when the lease begins. You’ll also be responsible for taxes and vehicle registration charges.

Do you pay taxes on a leased car?

Most states assess a sales tax or property tax on a car lease, and you should check with your state’s revenue department for details. Each state is different – some assess the car’s entire value; other states tax the lease payments. Your state might collect payment in one sum at lease signing; others spread the tax bill across monthly lease payments.

What is a disposition fee?

Many automakers charge a disposition fee, usually equivalent to one month’s lease payment, at the end of a lease. The fee helps cover the costs of selling a vehicle that has come out of a lease. Be sure to ask about this charge when going over paperwork at your lease inception.

Doug Demuro
Doug DeMuro writes articles and makes videos, mainly about cars. Doug was born in Denver, Colorado, and received an economics degree from Emory University in Atlanta. After graduation, Doug spent three years working for Porsche Cars North America. Eventually, he quit his job to become a writer, largely because it meant that he no longer had to wear pants. Doug’s work has been featured in a... Read More about Doug Demuro

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4 COMMENTS

  1. found this great article on every possible fee/tax for leasing explained and where dealers can crank up hidden fees — check it out! This site also has a bunch of good insight on car leasing in general: https://carvoy.com/blog/27-fees-and-taxes-explained

  2. I leased my Jeep (in 2014 in Nebraska)…I never paid a dime in any fees up front. No down payment either. In fact; I still owed 5K on the vehicle I had at that time and they paid it off. I walked out with paying ZERO. Leased 4 years (due to the 5K ). I did have to pay $1350 in sales tax 30 days later. (Still don’t understand why we had to pay sales tax when I wasn’t buying the car!).

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