Your Car Lease Terms Explained

Man and woman looking at lease agreement for car

Let's get real and admit that poring over the terms of your car lease probably isn't high on your to-do list. When I get a new car, I'm tempted to ignore the rather boring and overwhelming terms of the deal. I’d much rather think about the fancy GPS system, the heated seats (score!), and the beautiful interior than things like interest rates, doc fees, and destination charges.

But turning a blind eye to these terms can be costly. Leasing a new car is a major financial responsibility, so it’s really important that you understand all the details of your lease, including the terms. The more you know, the better you’ll be able to negotiate, which may end up saving you lots of money every month.

Here are a few of the most common financial terms and fees you’re likely to find on your paperwork:

  • Acquisition Fee – This may also appear as a “bank fee.” It’s usually between $500 to $1,000 and it’s set by the lease finance company.
  • Destination Charge – The cost to have your car delivered to the dealership - usually $400 to $800. However, keep your eyes peeled for charges, such as “pre-delivery inspection fee,” “delivery fee,” or “dealer prep.” Dealers will sometimes try to sneak these additional fees past you.
  • Disposition Fee – This is the fee to cover the cost of cleaning and selling the car when you return it at the end of the lease. These fees are typically around $350.
  • Documentation Fee or Doc Fee - An administrative fee, usually $150 to $300, that covers the dealer’s cost of processing paperwork for the lease, title, and registration.
  • Mileage Fee - The per-mile charge at the end of your lease for excessive miles driven during the lease. Fees range from $0.15 - $0.25 per mile. This fee is typically non-negotiable.
  • Net Capitalized Cost - This is the negotiated price of the car plus the acquisition fee.
  • Purchase Option Fees – The amount you’ll have to pay if you decide to purchase the car at the end of the lease. These can be negotiable, but usually at the end of the lease when you can ask to have these fees waived.
  • Residual Value – This is the estimated worth of the car at the end of the lease; it’s used to determine the cost of your lease.
  • Sales Tax – Sales tax will be charged on any down payment you make, depending on the state where the vehicle is leased.
  • Tag, Title, License and Registration Fees – These fees are charged by state and local governments. They are non-negotiable.

If you have questions about these or any other terms in your lease contract, don’t be afraid to ask! Leasing a car is a big deal - both financially and legally - so be sure you understand what you’re signing.


Please be sure to learn about our Better than a Lease product if you are considering leasing your next new or used car.


Check out  Better than a Lease


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About Author

Bill Burpeau
Bill Burpeau

Bill Burpeau is a relationship manager at Hanscom FCU. As a Credit Union Certified Financial Counselor, he is an enthusiastic advocate of financial literacy and education. He constantly studies and is up to date with the latest financial management concepts and technology. Bill is a graduate of Texas A&M University with a BBA in Business Management and served in the U.S. Navy as a Supply Officer.

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