Car lease fees or the fear of hidden car lease fees are probably the single, biggest reason some people are afraid to lease cars. I’ve received a few questions on my Car Lease Deals page about this, so I thought it would be helpful for me to give some further explanation on the topic of car lease fees. There are two ways car lease fees can be charged:
Payment-Based Lease Fees
Lease Acquisition or Dealer Handling Fees
These are lease fees that are rolled into your payment. These are fees you don’t need to concern yourself with or worry over. Why? Because all you care about is the lease value ratio; in other words, the bang-for-buck value of your lease payment. You can use one of my car lease calculator tools to help you know for sure if you are being quoted a good lease offer or not. If the dealer feels he needs to roll some type of lease acquisition or other fee into your lease deal then it will raise the monthly, average car payment, he is quoting you, and adversely affect his ability to close the sale as long as you stick to your payment goals. These fees are not for you to worry about. All you care about is getting as low of an average or effective monthly car payment as possible. Lease costs that are figured into your monthly payment are the dealer’s problem. But, there is another way you can be charged for fees and this is where you need to keep your eyes open.
Non-Payment-Based Lease Fees or Hidden Car Lease Fees
Fees that are not figured into your monthly car payment can be either charged up-front or at the termination of your lease. The up-front fees are the ones that are most easily recognized and avoidable. For instance, a Lease Acquisition fee might be added to your first month’s payment as a way for the dealer to meet your required monthly payment goal. These fees are usually between $400 and $1,000. The simple solution to this or any other up-front fees is to just say, no. Put the fee in your dealer’s lap and make him/her deal with it as a payment-based fee. Just remember to stick to your monthly payment goal. Unfortunately, there is one type of non-payment-based fee that is not always so easy to recognize.
Lease Disposition Fee
The Lease Disposition Fee is a charge, usually between $300 – $500, for turning your lease in at the end of your Lease Term. I had never encountered a lease disposition fee until about 12 years ago when I leased a Hyundai Veracruz. I was not happy when I had to pay $400 after faithfully making 24 months of payments to complete my lease obligation. The only way out of this was for me to lease another Hyundai from the same dealer. Obviously, this is their way of trying to make another sale. This is NEVER a fee you should have to pay. The simple way to avoid this is to tell your dealer that you do not want a lease disposition fee on your contract. Make sure you don’t sign a contract that has a lease disposition fee mentioned anywhere on it. Lease disposition fees are a sham and not necessary for leasing cars. Don’t confuse Lease disposition fees with the Early Termination of Car Lease. Let’s talk about that now.
Early Lease Termination Fee
An Early Lease Termination Fee or Break Lease Fee is not something to be concerned about because you should never lease a car unless you plan on keeping it for the full term. Usually, lease termination fees require that you make the remainder of your payments on top of whatever else you might be charged. Thankfully, should you ever find yourself in an emergency where you need to get out of a lease, there are other ways to do it through third party lease trade outfits.
Taxes are not Fees
Just like when you buy a car, when you lease a car, you have to pay taxes on it. Some states handle the tax on cars differently. In Colorado, when I lease a car, they will usually quote the deal with taxes figured into the payment. The tax amount for me in Colorado usually represents around 7.5% of my total monthly payments. For example, if my monthly payment is $250.00, the tax on that is $17.50 per month ($250.00 x 0.075). The total tax I pay on a leased car is not based on the MSRP of the car, but my total payments. So, for the example above, I will pay a total of $630.00 in tax over a 6 month term ($17.50 X 36).
Other Hidden Car Leasing Fees
Other hidden costs of leasing a car besides the ones mentioned above, are rare, but not impossible. The many car leasing myths that exist today from leasing skeptics, like Suze Orman and Dave Ramsey, would make you believe that a car lease contract is infested with hidden fees. This just isn’t true. Consumer protection laws now days, make it unlikely that you will be surprised with any fees that were not legally and fairly disclosed in your lease contract. The bottom line to remember about fees are these two simple rules:
One: Don’t worry about fees that are included and accounted for in your negotiated monthly lease payment. All you care about is meeting your payment goal.
Two: Before signing, look carefully at your contract for additional up-front fees that are not part of your lease payment. All you should ever have to pay up-front when leasing a car is the first month payment.
Three: Before signing, look carefully at your contract for additional closing fees such as lease disposition fees. Always refuse to lease a car that has these fees in the contract.