14 Hidden Costs of Leasing a Car

Some people find that leasing a car is a good option for their lifestyle and budget. While the monthly payments can be lower than what you would pay when buying a vehicle, there are some hidden costs to keep in mind.

To better manage your money, make sure you are aware of these extra expenses before you sign on the dotted line.

Don’t forget to include interest when thinking about the total costs of leasing a car. It can quickly add up and make a lease more expensive than you planned.

Just like with the terms provided when you finance a car for purchase, the interest charged on the lease can vary depending on the dealer.

After you sign a car lease, you need to register the vehicle with your state’s department of motor vehicles. You will need to complete paperwork and pay a registration fee that’s not usually included in the price of leasing the car.

But there is some good news here: You likely can let the dealer take care of filing the necessary state paperwork. The dealership staff probably knows how to get this done and can save you the hassle of waiting in line at the department of motor vehicles.

You can’t escape taxes when it comes to leasing a car. In fact, taxes may add quite a bit more to your costs than you expect.

In addition, this is one area where it’s probably impossible to negotiate a lower amount, although some states offer tax breaks on car leases.

You need to take care of that leased car. If you don’t, you could pay a great deal in damage fees.

You are responsible for any significant damage to the car when it’s in your custody. So, consider buying floor mats and seat covers to protect the inside of the car.

Another way dealerships protect their investment is by requiring a security deposit. Typically, these range from $500 to $1,000 or more.

It’s not unusual for dealerships to keep part or all of this money, contending that the vehicle has excessive wear and tear or damage. Make sure you understand how the issue of the security deposit will be handled when you return the car.

Some drivers want to break the lease early. Those who do should be prepared to pay a termination fee.

Termination fees can easily run into thousands of dollars.Termination costs could also include taxes and a fee to help offset the cost to sell the car.

Discuss how this fee is handled before signing your lease.

The rate of sales tax on the lease will depend on your state and where you plan to register the car. You may be able to save money if you shop in a nearby state with lower sales taxes.

However, if you plan to do this, make sure to research the costs and any other implications of leasing a vehicle in one state and keeping it in another.

While you probably expect to pay some administrative fees when leasing a car, you might be surprised how much they will cost you.

Many dealers hit you up for administrative fees when you first lease the car and then again when you return it. In both cases, these administrative charges can run as high as $750.

Here is another opportunity to do some research before you lease a car: Shop around to compare the acquisition fees in place at dealers around your area.

These are fees that cover the cost of doing business with a leasing company. They are sometimes called bank or processing fees and can vary depending on the dealership and the value of your leased vehicle.

You may face a fee if you return the leased car with more miles than expected. It’s a way the dealer can recover some of the vehicle’s lost value because of the additional miles you drove.

Keep this in mind, as it can be tempting to go for a lower-mileage lease to save on monthly payments, only to find that you exceed the limit and face overage fees. Such fees can range from 10 to 30 cents per mile.

You may also face auction fees if you go over the mileage limit on your lease. The dealer might say it has no choice but to sell your returned car at auction.

The dealer may then say you are responsible to cover the difference between what the car goes for at auction and the initial value of the car that had been calculated based on your mileage limit.

Factor in a down payment when planning for a car lease. Some leases require down payments of up to $5,000.

Also, don’t forget that if you are in the unfortunate circumstance of having the car totaled early on, your car insurance will reimburse the leasing company, but you will not receive your down payment back.

If you are thinking about keeping the car at the end of the lease, perhaps you can negotiate a lower buyout fee or price. This is what you will pay to keep the vehicle when you are done leasing it.

Or, if you are going into a lease and already anticipate you will buy the car, perhaps a better option is to consider buying a car in the first place.

When you return the vehicle, you will likely pay end-of-lease fees. These fees can be especially hard to swallow, because you are paying them after all the benefits of leasing the car are now in the past.

Also known as a disposition fee, an end-of-lease fee could include inspection, cleaning, storage, transportation and administrative fees.

Administrative fees and other hidden costs can quickly add up when you lease a car. That’s why it’s important to do your research and carefully review the lease terms before signing.

It’s also important to look for other ways to cut your auto costs. For example, talk to your agent about ways to save money on car insurance.