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.
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.
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.
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.
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.
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
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.
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:
- Cheapest Lease Deals in 2022
- Leasing a Car: When is Leasing a Good Idea?
- How to Make Sure Your Lease Deal is a Good One
Resource: See the Autotrader Car Lease Calculator.