Leasing a car may sound appealing because it’s a way for you to get into a new vehicle every few years without the large costs and long loan term that are often associated with financing a new car. But leasing isn’t exactly free. Instead, there are a lot of costs associated with a lease, especially up front, as many leases require drivers to spend big money before they ever drive off the lot. We’re looking at exactly what goes into these costs and how much you should expect to pay.
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 when leasing a vehicle. The first payment is, unsurprisingly, equivalent to the cost of one month’s lease payment. The down payment, sometimes confusingly called a capitalized cost reduction, is much like the down payment on a car loan. It’s money paid up front that can help you lower your monthly payment. The lower your down payment, the higher your monthly lease payment will be, and vice versa. Some lease down payments can be zero, while others can be thousands of dollars. This often depends on the deal you negotiate and the incentive offered by the manufacturer. Find a new car for sale near you
Deposit and Fees
Just like renting an apartment or a house, many car leases require 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, though. Many leases also include an acquisition fee, also called a bank fee, which is a fee charged by a bank on every vehicle lease. This fee is often a few hundred dollars, and it’s usually rolled into your down payment. Some dealerships also charge a doc fee, short for documentation fee, that is also often included in your down payment or added on top. The doc fee can add a few hundred dollars to your up-front 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. Be sure to ask about this fee when leasing your car so that you aren’t surprised by it at the end of your lease term.
Taxes and Registration
Virtually all U.S. states require a sales tax to be paid on a leased vehicle. Typically, this sales tax is charged on the down-payment amount, but there are some states (Georgia, Illinois, Minnesota, New York, Ohio and Texas) that require lessors to pay a sales tax on the entire price of the vehicle at the beginning of a lease. This can be a huge cost, so be prepared for it. If you live in one of those six states, this cost might be enough to make leasing look like a less attractive option than purchasing.
In addition to a sales tax, you’ll probably also have to pay some registration fees. These can vary from state to state, but they’re usually in the realm of a few hundred dollars.
Despite many deals advertising zero-down leases, leasing a car can be more expensive than you might realize. There are a lot of costs that you’ll have to pay up front, and while some of them can be negotiated, many others are fixed. Regardless of what car you’re leasing and what deal you’ve been offered, you should be prepared to pay something when you show up to lease your next vehicle.
Related Leasing Articles:
- 10 Best Cars to Lease in 2019
- Leasing a Car: The Drawbacks of a Zero-Down Lease
- How to Make Sure Your Lease Deal Is a Good One
Editor’s Note: This article has been updated for accuracy since it was originally published.