What is a Disposition Fee And Do You Have to Pay It?
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When you lease a car, it can sometimes feel like you have to read through a book’s worth of fees just to get through the contract. One of these fees that won’t impact you immediately, but might down the line, is the disposition fee.
This is the amount that a lessor charges you, the lessee, at the very end of the lease fee. You will have agreed to this fee at the beginning of the lease term, so it shouldn’t come as a big surprise when it hits. This fee covers the cost of the dealership to get the car cleaned and, if need be, repaired then sold at auction.
This fee shouldn’t be massive, but when the end of your lease is coming up, you should be prepared to pay anywhere from $200 to $500. And while that might be a bummer, it’s not all bad, and you might not even have to pay the disposition fee. CoPilot will discuss the fee and how to avoid it.
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If you have ever leased a car before, you should have some knowledge of the fees involved at the beginning and end of the lease term. Before you can drive off the lot with a new car, you will likely have to pay an acquisition fee, security deposit, and a down payment.
The acquisition fee is a fee that the lender charges in order to set up the loan. It is another way for the lender to get a little more money out of you, so you can try to negotiate it down or even out completely, but this is very unlikely. If you cannot or do not want to pay this fee upfront, it can often be broken up into monthly payments. Another fee you often have to pay to start a lease is the security deposit.
Much like a security deposit for an apartment, this is usually around the same cost as one month’s payments and will be repaid to you in full at the end of the lease, assuming the car is returned in good condition. Like the acquisition fee, you can try to negotiate your way out of this one if you have a good enough financial standing and good leverage to get an attractive deal.
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Finally, there is the down payment. Your lender may require you to pay a certain amount of the cost upfront, but beyond that, you can pay however much you want. This can lower your monthly payments, so if you are really confident that you can afford a big down payment now and want more affordable monthly payments, you might want to do this. However, there is less incentive to put down a big down payment for a lease than a loner financing agreement such as a home mortgage or even purchasing a car.
Interest will not build up as much over the course of the loan since a lease is typically much shorter, and if the car is totaled or stolen, insurance pays out the same amount whether you’ve already paid $500 or $5,000. So if a dealership is offering a “no money down” incentive on leases, you might still have to write a check to drive off, but you can avoid that high cost and spread it out over the next 12-24 months.
The very end of the lease is when the disposition fee comes in. Think of it almost like a restocking fee when you return an item to the store. It pays for the dealership to get the car back to showroom quality so it can be sold again.
As stated earlier, this can typically range from $200 to $500 depending on the value of the car and any negotiations you made at the start of the lease. Typically, you will have to pay this fee, but there are a few ways you might be able to save that money.
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The surefire way to avoid it is by purchasing the car. You can do this at the end of the lease or at any point leading up to that. If you decide before the end of your lease that you want to buy it and that now is the time to start financing to own your car, you can pay the remainder of your loan plus the residual value of the car you agreed to with the lessor at the beginning of the lease term.
This residual value is based on the expected value of the car at the end of the lease period. Most people won’t have the cash to pay for this out of pocket, so you will want to shop around for the best financing options from several different lenders to make sure you get a good interest rate, monthly payments, and general terms for your loan.
But if your current lease isn’t the car you want long-term, there Is another way that you can likely avoid the disposition fee. If you start a new lease on a new car from the same dealership, they are much more likely to waive the disposition fee.
It is much more expensive for them to try attracting new customers than to simply lose that small fee in order to secure a new lease agreement. Keep this in mind when negotiating your new lease, as your established connection to this dealership can actually give you leverage.
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