Understanding How Vehicle Lease Fees and Taxes Work
Whether you decide to lease a vehicle or finance one, there can be extra fees, charges and taxes that may come as a bit of a surprise. Especially if you’ve never purchased a vehicle before.
Fees will vary depending on the brand of vehicle, the state or province that you’re in and the leasing company used.
While most fees are the same whether you choose to lease or finance, there are some fees that you’ll face when you choose to lease that you won’t have if you choose to finance.
Down Payment
A down payment is part of the cash that you can put down at the time you sign a vehicle lease contract. Down payments for a lease will allow your monthly payments to be lower. However most people who lease opt to put $0 down.
It’s important to note that if you choose to make a down payment, that is separate from the amount due when your vehicle is delivered.
Security Deposit
Some vehicle leases require a cash (cash, credit or debit) security deposit. The amount of the deposit can vary but typically is the same amount as one monthly payment.
Lease companies offer the ability for you to put down a larger deposit in order to reduce your finance rate (month factor). But doing that considered a down payment and is separate from the security deposit.
This amount will be refunded to you at the end of the lease; less any disposition, additional mileage or damage charges.
Disposition Fee
This is a fee that is set by the leasing company. It’s due at the end of the lease to compensate the leasing company for the expenses that come with selling or disposing of a returned leased vehicle.
If you put down a security deposit then it can be applied to the disposition fee at lease end.
Acquisition Fee
Also known as a bank fee, this is an administration fee charged by the leasing company. This fee may not be outlined in your contract so you can ask the finance manager about it if you don’t see it. While the acquisition fee may be built into the fees due at lease signing, you may be able to get the fee wrapped into the monthly lease payments by asking the dealer.
Doc Fee
A documentation fee may be charged by your dealer. It’s an admin fee for purchased and leased vehicles. It’s a fee that’s added simply for additional profit for the dealer.
Some dealers are willing to reduce or eliminate the fee while others may have a company policy preventing them from removing it. Remember, it doesn’t hurt to ask.
Dealer Add-On Products
After you’ve agreed on a purchase price for the vehicle, you’ll end up sitting down with the finance manager. They will typically explore options such extended warranties, fabric protection, VIN etching and other add-on products and services.
While there are a few that are recommended, such as Wear Care and Maintenance Protection Plans, the majority of these add-ons are unnecessary.
Registration, License, Tag and Title Fees
These are required fees that you’ll pay in every state or province regardless of whether you choose to buy or lease a car. They are required by local governments.
Vehicle dealers collect the fees on behalf of the government. There are no markups for a dealer here, so they are non negotiable.
First Payment
A vehicle lease is different from financing with a loan. Payments on a lease are made at the beginning of each month in which they’re due rather than being due at the end of the month.
Think of it as a pre-paid cell phone plan. You pay for it before you use it.
The first payment is not the same as a down payment or security deposit. It’s simply the first payment on the lease that is collected by your dealer.
Sales Tax
If you choose to make a down payment, you’ll have to pay sales tax on the amount you put down. Sales tax is due at the time you sign your lease contract as part of your “due at signing” amount.
While most states and provinces only charge you sales tax on the actual monthly payment you make, there are some exceptions. Georgia, Illinois, Minnesota, New York, Ohio and Texas all require the entire sales tax to be paid up front.
If you choose to trade in a vehicle at the time you lease, you are given a tax credit for the value of the trade in.
Sales taxes will depend on the state/province that you live in. You’ll pay sales tax on the monthly payment you make.
When Are Fees Paid?
When you sign a lease contract there are a few fees that are due, including:
- first month’s payment
- down payment (if applicable)
- sales tax on the down payment
- security deposit (if required)
- state or provincial registration/license/tag/title fees
These fees are typically referred to as “lease inception fees” or “cash due at lease signing.”
Remember, if you choose to make a down payment that is separate and on top of the cash due at lease signing.
Tag and registration fees are due up front and are not included in the lease payments. If you see an offer for a vehicle lease with $o down, you’ll still have to pay the applicable tag and registration fees.
The disposition fee is due at the end of the lease.
There may be additional charges for excessive wear and tear or going over your mileage allowance. Sales tax may also be charged on these fees, depending on where you live.
Security deposits are due at the beginning of the lease but are returned at the end. If you have extra mileage on the vehicle than allowed or excessive wear and tear, the amount owing will be deducted from your security deposit.
Summary
Fees for leasing a vehicle will vary from dealer to dealer, state to state and province to province. There are fees that are required by the government, while other fees may be added on by the dealer.
There are certain fees that can be rolled into a lease, while some cannot.
If you’re unsure about which fees can be rolled into the lease payments, make sure you ask the finance manager at your dealership.
