New Car Leasing: Discover Which Taxes And Fees You Must Pay For

New car leasing is a complex deal and you should try to understand every aspect of it to get the best possible bargain on your lease. Also, there can be miscellaneous charges, fees, and taxes that often surprise newcomers to the process.

To make your job easier, the BuyingAdvice Team has put together a list explaining the basic auto leasing fees and taxes you are expected to pay when you lease a new car:

Acquisition fee: This is an administrative charge for the work done by the dealer in initiating the lease. It’s generally included in your capitalized cost, also called “cap cost,” which is the final price you pay, when calculating monthly payments. Although this fee is set by the leasing company, sometimes dealers bump it up to get an extra profit for themselves. If you feel this is being done to you, try negotiating it down.

Capitalized Cost Reduction (down payment): The more money you pay up front for your leased vehicle, the lower your monthly payments will be. Some lease deals allow you to pay no down payment, but know that the amount you pay over the life of the lease will be higher, especially since you’ll be paying more interest.

Security deposit: You pay this up front as security for excess wear and tear on the vehicle you’re leasing. The automobile leasing company determines the amount, and it’s usually about the same as the monthly payment. It is refunded at the end of the lease if the car is in good condition and you haven’t exceeded the mileage allowance.

Disposition fee: This fee is also set by the leasing company and is due at the end of the lease to pay for the expenses incurred when selling or disposing of the vehicle.

Early termination fee: To get out of a lease before your lease agreement is up, you must make the remaining payments, plus pay a penalty. However, Internet services such as Swapalease.com can help you transfer your lease to someone who wants to assume a short-term lease.

Excessive wear and tear fee: This amount is charged once you return the car to cover wear and tear beyond what is considered normal. To avoid paying this fee, we suggest you ask the dealer to explain their standards of “excess” wear – and make sure the terms are clearly identified in the lease agreement — and then take good care of the car so you don’t have to pay this fee.

Excessive mileage fee: You’ll have to pay this at the end of the lease term if you go over the predetermined mileage limit in your lease. The amount you will have to pay varies, but for each mile in excess of the limit, you may pay anywhere from 10 to 20 cents extra – which can add up fast. Double-check the mileage allowance, which is typically somewhere between 10,000 – 15,000 miles a year, before signing a lease. If you know you will exceed the mileage limit, you might save money if you buy extra miles upfront to avoid this charge.

Purchase option fee: You may be on the hook for this fee if you choose to buy the vehicle at the end of a lease. It’s generally settled at the beginning of the lease but may vary during the term of the lease.

Sales tax: You will be responsible for paying sales tax on the monthly lease payment at the local sales tax rate. This means you only pay tax on the part of the car you lease, not the entire value of the vehicle. Sales tax isn’t charged in New Hampshire, Delaware, Montana, Alaska, Hawaii, or Oregon.

Luxury car tax: This is a federal excise tax assessed on vehicles with a gross weight of less than 6,000 pounds and a value exceeding a threshold amount, which is adjusted periodically for inflation.

Documentation, registration, license, tag, and title fees: Don’t forget these fees, which you’ll have to pay at your state Department of Motor Vehicles (DMV) whether you lease or buy a new car. Browse the DMV website for further details, since the fees vary significantly from state to state.

Remember that according to the Consumer Leasing Act, lease agreements have to disclose to the lessee the terms under which the lease is being written, including taxes and fees. Always double check all the terms of your lease before signing, especially the fine print, and make sure you understand exactly what you’re paying for.

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