Disposition fees: What they are and how to avoid them
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At the end of your lease, you choose to buy your car or turn it in. If you choose the latter, you will be charged a lease disposition fee. This charge is assessed by the leasing company and covers the cost of preparing the car for the next buyer. But you may be able to avoid paying it — as long as you’re ready to negotiate.
What is a lease disposition fee?
A disposition fee, or a turn-in fee, is a charge to return your leased vehicle. The leasing company charges this fee to cover the cost of cleaning up and repurposing your old car for resale.
They typically range from $300 to $400, according to Edmunds. The make and model of the vehicle, the dealership and the city, state or county that it’s located in all influence the disposition fee.
The disposition fee is separate from your monthly payment but may be charged with other types of fees, like early termination charges, excessive mileage charges and excessive wear-and-tear charges.
Do you have to pay the disposition fee?
If a disposition fee is included in your leasing agreement, you can avoid it by purchasing your vehicle or signing another lease — or trying to remove it from the agreement before you sign.
- Purchase your leased vehicle. You can buy your leased vehicle if your contract includes a purchase option. If you buy it, the leasing company may choose not to charge you a disposition fee since it doesn’t have to prepare the car for another buyer.
- Sign another lease. If you sign another lease with the same car dealership or leasing company, it may automatically waive the fee. Otherwise, you can negotiate a fee waiver when structuring the new lease agreement.
- Check the contract before you sign. Sometimes companies don’t charge a disposition fee. If there is one, ask for it to be waived and removed from your lease agreement.
Other auto leasing fees to look out for
A disposition fee isn’t the only charge you could expect to face as you’re leasing a car. Look out for other fees.
- Excessive mileage. If you go over the mileage you’re allotted in your lease, you’ll have to pay this penalty.
- Wear-and-tear. If your car has some major dings, scratches or stains, you could face this charge based on the cost of the repairs.
- Early termination fee. If you return your lease before your term expires, you could end up paying extra to get out of your contract.
- Purchase option charge. Some dealerships may have a fee if you decide to buy the car once your lease ends.
Not all fees are charged or required with a lease agreement. It’s important to review your contract and ask any questions before signing. You may even be able to negotiate some lower or remove them entirely, but you should still count on paying a few additional fees when you lease a car.
5 tips for leasing your next car
If you plan on entering another lease to avoid a disposition fee, keep these tips in mind.
1. Make a solid budget
Don’t trick yourself into thinking that you can afford more than you can. Review your budget to calculate a reasonable monthly payment. Give yourself a window and try to pay off other debts and lower expenses before taking on a new lease. For instance, consider paying down your student loans or find a cheaper cell phone plan to make room for a possibly higher car payment.
If you’re having trouble determining how a car may fit into your budget, use an auto lease calculator to see what you can afford.
2. Pick a car that fits your budget
Not every car is priced the same. Once you’ve figured out what you can afford, find cars that fit that budget. It’s fine to have a list of preferences but avoid settling on only one car. You don’t want to get your hopes up and, in a stressful moment, settle for something that’s more expensive than you can afford.
3. Trim your down payment
Leasing a car is different from buying a car. If something happens to your car during your lease, your insurance company pays the leasing company the value of the car, not you. This means that the chunk of cash you put down at the beginning of your lease is lost.
You’ll typically only need $2,000 or less to cover upfront costs. But consider putting no cash down and rolling all the fees and costs into your monthly agreement if you can afford it.
Ask about your current vehicle’s trade-in value if you plan to get rid of it. If it’s worth $2,000 or less, it’s fine to use that as your down payment and lower your monthly payment. But if it’s worth more, you may want to sell it on your own and save the extra cash for other expenses, like paying off debt or building up your savings.
4. Consider your commute
Leasing agreements tend to have set mileage limits — typically 10,000, 12,000 or 15,000 annual miles. If you set your mileage at 10,000 a year and end up going over, you can expect to pay an excessive mileage charge, usually around $0.30 per mile. So, if you set your mileage at 10,000 and go to 12,000, that extra 2,000 miles will cost you $600 at the end of your lease in excessive mileage fees at the usual rate. That’s not including other charges.
Understand your commute and driving habits before you get into a lease. That way you can choose the option that best fits your needs.
5. Compare rates ahead of time
Your interest rate is based on your credit score and history. The higher your credit score, the lower your interest rate. If you have a co-signer with excellent credit, you could get a lower interest rate — and a lower overall monthly payment — compared to a deal without a co-signer.
Shop around and compare rates from various dealerships to find the best option.
The bottom line
Before you lease a vehicle, read your leasing agreement carefully to see if it includes a disposition fee. If you don’t want to pay, ask for it to be waived before signing the contract. Alternatively, you could avoid paying it by purchasing the vehicle at the end of your lease or agreeing to a new lease.