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Up-Front, Ongoing and End-of-Lease Costs

Ongoing Costs

The ongoing costs of a vehicle lease are the monthly payments, vehicle insurance, repairs and maintenance, personal property taxes (where applicable), and registration and inspection fees.

Monthly Payment

Under Regulation M, the calculation of the lease monthly payment must be disclosed in a form substantially similar to the Sample Leasing Form. The following items are involved in the calculation of your monthly payment.

Gross capitalized cost More info Example
Capitalized cost reduction More info Example
Adjusted capitalized cost More info
Residual value More info Example
Depreciation and any amortized amounts More info
Rent charge More info Example
Total of base monthly payments More info
Lease payments More info Example
Monthly sales/use tax More info
Other monthly charges More info
Total monthly payment More info

Vehicle insurance

In most leases, you are responsible for purchasing and maintaining vehicle insurance throughout the term of the lease. When you sign the lease agreement, you will be required to show proof of insurance coverage, including the names of the insurance company and agent, insurance amounts, coverage dates, and policy number. The following types of insurance are typically required:

  1. Collision insurance, usually with a maximum deductible of $500 or $1,000
  2. Comprehensive fire and theft insurance, usually with a maximum deductible of $500 to $1,000
  3. Liability insurance with coverage requirements of $100,000/$300,000/$50,000 ($100,000 of bodily injury insurance for the injuries of one person, up to $300,000 for two or more persons per accident, and up to $50,000 for property damage).

Note: The maximum deductible amounts and the coverage limits are designated in the lease agreement, but you may choose to have lower deductibles or buy more coverage if you wish.

Continuation of insurance coverage. If you fail to keep the insurance coverage in force, you will be in default of your lease agreement. When the lessor discovers that the proper coverage is not in effect, you may be notified to secure coverage immediately to avoid repossession. If your vehicle remains uninsured, the lease may be terminated, your vehicle may be repossessed, and you may be liable for early termination charges.

Repairs and maintenance

Your specific responsibilities for repair and maintenance of the vehicle are stated in your lease agreement. You are typically responsible for

  • Maintaining the vehicle, having the vehicle regularly serviced, and following the manufacturer's instructions, as outlined in the owner's manual, to keep all warranties in force
  • Keeping all equipment in good working order
  • Making all needed repairs and replacements, including complying with any recall notices from the manufacturer
  • Not adding, removing, or modifying any accessories, equipment, or parts without the prior written permission of the lessor.

Your lease may require you to retain all service records to show that all manufacturer-recommended servicing has been performed. Even if not required to do so, you may want to keep your service records. Unless otherwise stated in your lease agreement, you must pay all operating costs, such as gasoline, oil, maintenance, and replacement tires. In some lease arrangements, the lessor will provide and (or) pay for some maintenance services, such as the cost of manufacturer-recommended servicing or oil changes. However, this arrangement is more common for business leases than for consumer leases. (Business leases are not covered by Regulation M.)

The manufacturers' new-car warranties usually cover vehicles regardless of whether they are leased or purchased. The lease agreement on a used vehicle typically includes the manufacturer's new-car warranty if it is still in force. If the lease agreement does not include the manufacturer's warranty or another expressed warranty, the vehicle is usually leased "as is" and the lessor will state that there are no warranties, expressed or implied, as to the vehicle's merchantability, condition, suitability, or fitness for a particular purpose.

Personal property tax (ad valorem tax) during the term

Some states have a personal property tax on leased vehicles. You will generally be responsible for payment of any applicable personal property tax either to the lessor or directly to the taxing authority. Personal property tax is based on a percentage of the vehicle's value. It is typically assessed annually, although the lease agreement and state laws govern when you will owe any personal property tax on your leased vehicle and when it must be paid. Note: Many taxing jurisdictions do not assess a personal property tax on vehicles.

Special issue for military families More info

Other ongoing expenses

Registration renewal, annual vehicle inspections, and other government fees. You usually must pay annual state and local government fees required to register the leased vehicle and operate it.

Late charges. You must pay the full monthly scheduled payment amount by the designated due date, as stated in your lease agreement. If the full payment is not paid by the due date or during any applicable grace period stated in the lease (often 10 days), you will usually incur a late charge. The late charge amount is either a percentage of the unpaid payment or a fixed dollar amount. If you become delinquent in your lease payments (and therefore default on your lease), the lessor has the right to repossess the vehicle. If your vehicle is repossessed, you will owe early termination and default charges. See the section Early Termination.

Traffic tickets. You are also responsible for any parking tickets or other traffic fines incurred by the leased vehicle. If you do not pay the tickets or fines promptly, you are in default on your lease. In most states, the lessor, as the owner of the vehicle, will be informed of the tickets or fines. The lessor may, but does not have to, pay them for you. If the lessor does pay them, the lessor will bill you for them and, if stated in the lease agreement, also for an administrative charge.

Next: End-of-lease costs: Closed-end leases

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Last update: May 5, 2003