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Disposition fees: What they are and how to avoid them

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You’ve reached the end of your car lease and must decide if you want to keep the 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.  

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 the sake of selling it. The price of this flat fee varies and typically ranges from $300 to $400, according to Edmunds. Factors that determine the disposition fee include the make and model of the vehicle, the dealership and the city, state or county that it’s located in.  

The fee is separate from your monthly payment. It might get 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 taking these actions:  

  • Purchase your leased vehicle: Once your lease expires, you may be able to purchase the car, if the terms of your lease include a purchase option. If you buy it, a 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, 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 you’re unsure, ask about it before you sign your leasing agreement. There’s a chance that you could ask for it to be waived and avoid paying it when you turn in your car, but you’ll need to do it before you sign your 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, including:  

  • Excessive mileage charge: If you go over the mileage you’re allotted in your lease, you’ll have to pay this penalty.  
  • Wear-and-tear charge: If your car has some major dings, scratches or stains, you could face this charge based on the cost of the repairs.  
  • Early termination charge: If you return your lease before your term expires, you could end up paying this fee.  
  • Purchase option charge: Some dealerships may charge you 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.  

5 tips for leasing your next car  

Keep these tips in mind if you plan to lease another vehicle.  

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 debt 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 in upfront costs for a leased vehicle. Consider putting no cash down and rolling all the fees and costs into your monthly agreement, as long as you can afford those monthly payments.  

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, like 10,000, 12,000 and 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.  

It’s a good idea to understand your commute and driving habits before you get into a car. 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.  

Be sure to 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 and other auto leasing fees. Doing so can help you get a better idea of how much it’ll cost to lease the vehicle. If you don’t want to pay the fee, 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 — if your lease includes a purchase option — or leasing a vehicle from the same dealership.  

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Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
Edited by
Auto loans editor