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

Up-Front Costs

Common up-front costs

Here is a list of the most common up-front costs associated with a vehicle lease.

Capitalized cost reduction. A capitalized cost reduction is the sum of any cash down payment, trade-in allowance, and rebate. It is subtracted from the gross capitalized cost, leaving the adjusted capitalized cost. More info

First monthly payment. In multiple-payment leases, payments are made at the beginning of each monthly period. For this reason, the first monthly payment is typically due at lease signing. Some leases require that the last monthly payment or several of the final monthly payments be paid at lease signing. In a special type of lease called a single-payment lease, you pay a single large payment at lease signing instead of making payments over the term of the lease.

Security deposit. Many leases require that a security deposit be paid at lease signing. The security deposit may be used by the lessor in case you default, or at the end of the lease to offset any amounts you owe under the lease agreement. Any remaining amount may be refunded to you. More info

Taxes. Several types of taxes may be due at lease signing, depending on the taxation rules of the state and county in which the vehicle is garaged and the procedures of the lessor:

  • State or local sales tax on any capitalized cost reduction
  • State or local sales tax on the adjusted capitalized cost
  • State or local property taxes on the vehicle
  • County or other local taxes

Instead of paying for these taxes at lease signing, you may have the option of having the lessor pay them and include them in the gross capitalized cost. If you choose the option, you will increase your monthly payment and pay added rent charges.

Optional insurance and services. You may choose to purchase optional insurance products and other services when you lease a vehicle:

  • Credit life and disability insurance
  • Unemployment insurance
  • Gap coverage (if gap coverage is required, premiums are included elsewhere in the lease)
  • Vehicle maintenance or service contract or mechanical breakdown protection
  • Other services or insurance coverages.

More info

Other charges. Several other types of charges may be assessed at lease signing, such as

  • Vehicle license and registration fees
  • Vehicle title fee
  • Dealership documentation fee.

More info

Prior balances. A prior balance is an amount due under a previous finance contract or lease agreement after the value of the vehicle traded in on the lease is credited. A prior loan balance (credit balance) or prior lease balance may be paid at lease signing, or it may be capitalized. If the prior balance is paid at lease signing, it may be labeled as either a capitalized cost reduction or a prior lease or loan balance. If the prior balance is capitalized, it will be included in the gross capitalized cost and paid over the term. If you choose to capitalize the prior balance, you will increase your monthly payment and pay added rent charges. More info

Acquisition fee. An acquisition fee is a charge included in most leases that is either paid at lease signing or included in the gross capitalized cost. It may be called a bank fee, an administrative fee, or an assignment fee. This fee usually covers a variety of administrative costs, such as the costs of obtaining a credit report, verifying insurance coverage, checking the accuracy and completeness of the lease documentation, and entering the lease in data processing and accounting systems. More info

Effect of capitalizing obligations and paying them over the term versus paying them up front

Instead of being paid up front, many of these costs may be included in the gross capitalized cost. If you choose to capitalize them, you will increase your monthly payment and pay added rent charges. The choice you will need to make is between (1) higher up-front costs but lower monthly payments and (2) lower up-front costs but higher monthly payments. Paying higher up-front costs should lower your rent charges and "total of payments" over the term. Check your lease agreement. Example Your lease may offer the option of including the following items in the gross capitalized cost:

  • Taxes
  • Optional insurance and services
  • Title and registration fees
  • Other charges
  • Prior balances
  • Acquisition fee.

Next: Ongoing costs

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Last update: May 5, 2003