How fees and taxes work

If you’re new to leasing or buying a car, taxes and fees might surprise you. These fees are by no means stagnant also – they differ depending on dealer, leasing company, and location.

If you’re used to buying, however, these shouldn’t surprise you. There are few fees that are exclusive to leasing – most adhere to both buying and leasing.

Here are some of the most common fees and taxes:

First Payment fee

The main point of difference between a lease and a loan is that with leases, payments are made at the start of the month whereas, with loans, payments are made at the end of the month. Following that rationale, when you lease a car, you pay the first month’s payment when you sign the leasing contract. This is by no means a down payment or a security deposit – this is simply you paying for the first month that you lease your car. Conversely, your last payment is due a month before your lease ends.

Down Payment (Capitalized Cost)

Down payments aren’t considered fees, but it is part of the payment given at signing. Again, a downpayment is not a deposit, but just a way to pre-pay for part of your monthly payments upfront and lower the amount you’ll have to pay monthly.

Security Deposit

Not all cars require a security deposit, but yours might. This fee is usually the same amount as your monthly payment and will be refunded to you at the end of your lease term, as long as you don’t go over your agreed upon mileage or inflict more than the normal wear-and-tear on your car.

Generally speaking, if you have good credit you won’t even have to make a security deposit. Although, it might be in your best interest to make one, depending on the circumstance. Some leasing companies permit you to make a security deposit to reduce your interest rate (money factor). This is a pretty good deal if your credit score is less than ideal but you have the cash to put down. This amount is still refundable at the end of your lease term.

Acquisition Fee

The acquisition fee is a fee charged by the leasing company often not shown in your contract but is included in your capitalized cost. This is usually paid up front, although you’d usually have the option to roll it into your monthly payment if you’d prefer. This fee can range from $500-$1000 depending on the car you’re leasing. Beware: although this fee is set by the leasing company, dealers will sometimes inflate the cost of this payment to make a little extra money in their pockets, so if the acquisition fee seems totally out of whack, make sure to double check with your dealer where exactly it’s coming from.

Disposition Fee

This is a standard leasing fee paid to the leasing company at the end of your leasing term to pay for the expenses of “disposing” or flipping the returned vehicle. That being said, if you decide to buy out your lease at the end of your term, this fee usually won’t apply. This fee is usually in the ballpark amount of $350, although some leasing companies don’t charge this fee at all (Honda being an example). A lot of the time, people will just use their security deposit to pay off their disposition fee at the end of their term.

Sales Tax

Sales tax is paid on a downpayment made to lower your monthly costs (as well as your monthly costs themselves) and is paid at the time you sign your lease. While some states require the sales tax to be paid up front based on the sum of all your monthly payments, most (including New York) allow it to be charged on individual monthly payments.

Registration, License, Tag, and Title Fees

These fees are required regardless of whether you lease or buy your vehicle and are required officially by state and local governments. Dealers are just the middleman and collect these without any kind of inflation and pass them over to government agencies – subsequently, these fees are not negotiable.

Property Taxes

Some states apply annual property taxes to vehicles, so this fee falls on the lessee. Sometimes the state will directly bill you for the property tax, other times the leasing company will get billed by the state and they will, in turn, send you the bill – regardless, property tax is your responsibility.

Doc Fees

Doc fees (or documentation fees) are usually charged as an administrative fee by dealers for cars that are both bought and leased. This fee usually ranges from around $250-$600, which is straight profit for the dealer. Some dealers will waive the doc fees but others will refuse as company policy.

Dealer add-on products and costs

Dealers will often try to pressure you into paying for a bunch of add-on products that will quickly raise your monthly payment or upfront cost. Examples include protection plans. Window VIN etching, paint sealer, extended warranties, fabric protectant, rust proofing, credit insurance, and lease wear-and-tear coverage. Although some of these may seem enticing, you can easily find these products elsewhere for much less.

When are fees taxes paid?

Upfront costs should include first month’s payment, any downpayment you put to lower your monthly cost, security deposit, an official state or registration fees. The acquisition fee is sometimes paid upfront as well. These are usually called ”drive out” costs.

Note that a lot of these fees are pretty much never included in advertisements you’ll see boasting incredible lease deals (even ones that claim zero due on signing).

Disposition fees are paid at the end of your leasing term when you return your vehicle to the leasing company.

Sales tax and leasing

Usually, the way that taxes are paid is by taxing the monthly lease payments at the local sales tax rate. In other words, this ensures that you only are paying tax on what you use out of the car, not on the car’s entire value.


Fees and taxes can pile up and increase your cost of leasing exponentially and aren’t something to be taken lightly. Make sure whenever you are offered a deal that there is 100% transparency and that all additional taxes and fees are included. Otherwise, your lease deal of $200 per month could quickly turn into $500 per month.

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