The Fees and Taxes Involved In Car Leasing (Complete Guide)

Car keys and money on table with man using calculator. Buyer counting savings and gas cost or salesman calculating sales price, vehicle value or road taxes.

Car leasing can be a complicated financial endeavor.

Imagine this: You spend the whole day with the dealer, negotiating for one single monthly lease payment for your new car. Everything seems crystal clear, and you’re ready to fill the papers.

Then BAM! The dealer hits you with two upfront fees, a fee at the end of the lease, AND sales tax. The cost you thought you were going to pay swells dramatically, and you’re left feeling like an idiot because either:

  • You paid and got bamboozled into paying for fees and services you didn’t understand.
  • You didn’t pay and left, which means the whole day was wasted and you’ll have to go through the leasing process again.

This doesn’t need to happen. Vehicle leasing can be much less stressful going in prepared for all expected costs. We’ve got you covered on:

  • Costs due at the beginning of the lease
  • One-time fees by the leasing company or dealership
  • State and local sales tax
  • License and registration fees

Some of these can be negotiated, and some can’t. Either way, knowing the fees and taxes involved in your lease will give you the confidence to seek the best financial deal.

So, let’s dive right in.

Costs Due at the Start of the Car Lease

Many leasing deals require you to pay a fixed sum at the start of your lease. This sum is made up of multiple charges, which are referred to as upfront or out-of-pocket expenses.

Depending on the offer, the upfront expenses can reach several thousand dollars, up to a five-figure sum for high-end, luxury vehicles.

Some lease deals come with zero out-of-pocket expenses. In these cases, the charges you would normally pay at the beginning, are built into the monthly lease payment.

This is great if you don’t have spare cash at the start of the lease, but it generally increases the total lease cost.

Down Payment

The down payment is paid upfront and is directly discounted from the starting price of the new vehicle. It’s up to you to choose how much to put down if anything at all.

Female giving dollars to car dealer, down payment on brand new electric vehicle

When calculating the lease, all down payments, rebates, trade-ins, and negotiations are discounted from the purchase price of the vehicle, which can be negotiated to be less than the MSRP.

The leasing company applies interest on the remainder, which is called net capital cost. The bigger your down payment, the smaller the net capitalized cost and, therefore, less money to accrue interest.

The total cost of the lease is always cheaper if you offer a down payment. The only drawback is you have to pay a large sum of cash, and it’s usually not the only upfront payment in the lease.

Security Deposit

The security deposit is a voluntary payment that reduces the risk of you not paying your monthly payment. It’s paid at the start of the lease, and it makes your monthly payments smaller. The security deposit is returned to you at the end of the lease if there are no outstanding charges.

The security deposit is not a down payment; it doesn’t reduce the capital invested in your vehicle. But it can reduce the interest applied to that capital.

Leasing, just like any financial services, is influenced heavily by risk, and risk is reflected in your credit score, which is one of the main factors forming the interest rate (APR or Money Factor) applied to your lease.

A security deposit reduces that risk considerably, allowing the leasing company to offer a lower interest rate.

First Month’s Lease Payment

Leasing is effectively renting. Similar to renting an apartment, the first month’s lease payment for your car loan is due upfront.

While other upfront payments are usually voluntary, the first month’s lease payment is mandatory for every lease.

Other Upfront Lease Payments

Depending on your lease, there may be more upfront fees, like one-time dealer or leasing company charges, sales tax, registration and license fees, as well as insurance.

Those will be discussed in the sections below.

One-Time Leasing Fees

These fees are charged by the dealership or leasing company for procuring the leased vehicle and handling all associated paperwork and processing during your lease.

Wallet with money

Acquisition Fee (Bank Fee)

The acquisition fee is charged by the leasing company for setting up your lease and acquiring the vehicle for you.

It is typically in the range of $495 to $995, depending on the car company. High-end, luxury vehicles have higher acquisition fees than lower-priced cars.

The acquisition fee is paid upfront, or it’s added to the net capital cost and spread over your monthly lease payments.

Disposition Fee

The disposition fee is also charged by the leasing company. It’s due at the end of the lease to cover the expenses for cleaning, storage, shipping, and documentation related to the resale of the vehicle.

The disposition fee is typically around $350. And, often, manufacturers offer to waive the fee if you decide to lease another model from them.

Administration Fee (Documentation Fee)

The administration fee is charged by the dealership to handle all documentation, onboarding processes, and overheads related to your lease.

This fee differs dramatically from dealer to dealer and state to state. Dealers are not keen to negotiate this fee, but you may be able to notch it down a bit if you catch them at the right moment.

Here is a good resource for the average administration fees charged in each state, along with information about state-mandated fee caps.

Buyout Price

Usually, your lease contract will include a buyout clause, which gives you the opportunity to buy your vehicle from the leasing company at the end of your lease.

In most cases, the buyout price is equal to the residual value, but if you want to buy your car halfway through your lease, the company will recalculate this price.

Lease Swap Fee

If you’re not happy with your leased vehicle, there may be a way to assign the lease to another person, who will continue over until the end of the lease term. This is called a lease swap.

If the leasing company approves, the contract can be transferred, but the associated paperwork and credit checks will be charged as a lease swap or lease transfer fee.

Early Termination Fee

It is not recommended, but you can choose to terminate your lease before it expires. In this chase, the leasing company will calculate their losses and charge you a heavy penalty.

Document with title Financial penalty on a desk.

Moneywise, terminating your lease early is always the most expensive option, so it should be avoided if possible.

Sales Tax on Leased Vehicles

In most states and in Canada, you are charged state and local sales tax on the down payment amount and on the monthly lease payments.

The residual value is exempt from sales tax, which is one of the benefits of leasing.

Here is a good resource to find your state’s sales tax rate.

Usually, the sales tax is included in your lease offer but always double-check. Some dealerships can advertise lease prices excluding the sales tax, producing deceptively good deals.

Tax laws vary from state to state. States like Texas, New York, Minnesota, Ohio, Georgia, and Illinois require all applicable sales tax to be paid at the time of signing the lease. This means that in these states, you pay the sales tax up front, and the cost is excluded from the monthly lease payment.

States Without Sales Tax

The states below don’t charge sales tax:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

Instead, they rely on individual counties and cities to manage their own local state sales tax.

Local Tax

Some cities and communities charge local sales tax on purchases. These are either added on to state tax, or they’re collected instead of state tax (if the state doesn’t charge taxes).

Find the total applicable sales tax using the Avalara calculator.

Registration and Title Fees

The Department of Motor Vehicles in your state charges a variety of fees for registering and licensing your vehicle for the public roads.

These fees depend entirely on your state legislation. They are mandatory and non-negotiable.

Check with your local DMV to find the exact type and amount you’ll have to pay inapplicable fees. The most common fees are described below.

Registration Fee

This fee is for registering the vehicle under your name. It typically costs below $100.

License Plate / Tag Fees

The DMV charges you a small fee for issuing license plates and vehicle tags. Tags and plates are required on the front and back of every vehicle on the road.

Title Fee

The title is an official legal document showing the owner of a vehicle. The leasing company owns the title to the leased vehicle, but customers are still required to pay for it.


Of course, almost all cars on the road require some form of insurance.

The state and your leasing company will have specific requirements about what type of insurance you need and how much coverage it needs to provide.

Agent man presentation and consulting car insurance detail to customer and waiting for his reply to finish.

It is nearly impossible to predict or negotiate on the price of insurance products. It depends on a variety of factors including:

  • Specific vehicle
  • Location
  • Driver age and driving history
  • Credit score
  • Current insurance status
  • Assets owned
  • Marital status

However, you can shop around multiple offers to select the best one for your needs.

The most popular types of insurance for leased cars are described below.

Liability Insurance

Most states require drivers to purchase minimum liability insurance. This insurance protects other drivers, pedestrians, property owners, and public property if you cause an accident while driving.

Liability insurance does not cover your own medical bills or vehicle repair expenses.

Auto Insurance

This insurance protects the leased vehicle against damage, theft, natural disasters, and more.

It provides coverage even if you’re at fault, which is why most leasing companies require you to purchase a policy with adequate coverage.

GAP Insurance

Automobiles depreciate over time. Depreciation is the fastest in the first year and tapers off over time. After five years, the vehicle is typically worth half its original value.

Generally, auto insurance companies payout depending on the current market value of the vehicle. In most cases, that’s less than the price of your lease.

If the vehicle is totaled, it’s likely you’ll still owe money to the leasing company. This is why many leasing companies require you to purchase a GAP insurance policy.

GAP insurance form on a table with a book.

GAP, or guaranteed asset protection, insurance covers the difference between how much you still owe on your car lease and what the insurance company pays out. It’s there to help the leasing company regain some of the value of the car in the case of a total loss.

Don’t Get Blindsided

As promised – these are all the fees you should expect to pay upon signing your new vehicle lease agreement. Now that you have this information, you won’t be swindled by any dealership, and you’ll be able to negotiate a better deal for your leased car!

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