Disposition fee

Disposition fee is a money term you need to understand. Here’s what it means.

What is a disposition fee?

A disposition fee is a flat fee charged by some car lessors payable at the end of vehicle lease. The purpose of the disposition fee is to clean up and repair any damage to the vehicle and bring it into a suitable condition for resale. The disposition fee is specified in the lease agreement.

Deeper definition

When a car is leased, the lessee (customer) is given the right to use the vehicle for the period of the car lease. At the end of the lease period, it is returned to the lessor who resells the vehicle.

Before the lessor can sell the vehicle, it has to be inspected, serviced, repaired of any damages and cleaned. To cover these costs as well as other administrative and selling fees, the lessor often will specify a fixed disposition fee in the lease contract that is payable at the end of the lease.

If the lessee decides to purchase the vehicle, this fee often is waived. The same may apply if the customer leases a replacement vehicle through the same lessor.

The disposition fee is only one of several end-of-term charges that can be applied. Customers leasing vehicles need to be aware of other additional charges levied, such as excessive mileage charges, wear-and-tear charges, and a residual difference charge if the value of the vehicle at the end of the lease is less than the residual value shown in the lease.

Not all leasing companies charge a disposition fee and of those that do, the amount may vary between $350 and $500. It is worth shopping around for the best deal. Other fees such as acquisition fees and security deposits also should be taken into account.

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Disposition fee example

When Michael leases a car, his finance company presents him with a lease agreement that specifies the terms of the lease, including a disposition fee. Before signing the lease, he clarifies what happens to the disposition fee if he decides to buy the vehicle or lease another one. Michael also makes sure that any changes negotiated with the finance company are recorded on the lease agreement.

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