BUYING AND LEASING ARE DIFFERENT

When you buy, you pay for the entire cost of a vehicle, regardless of how many miles you drive it. You typically make a down payment, pay sales taxes in cash or roll them into your loan, and pay an interest rate determined by your loan company, based on your credit history. You make your first payment a month after you sign your contract. Later, you may decide to sell or trade the vehicle for its depreciated resale value.

When you lease, you pay for only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it. You have the option of not making a down payment, you pay sales tax only on your monthly payments (in most states), and you pay a financial rate, called money factor, that is similar to the interest on a loan. You may also be required to pay fees and possibly a security deposit that you don't pay when you buy. You make your first payment at the time you sign your contract — for the month ahead. At lease-end, you may either return the vehicle, or purchase it for its depreciated resale value.

REASONS TO LEASE

• Would you like to get more car for less payment
• Would you like to lower your payment by as much as $50 to $375 dollars  a month or more compared standard finance programs
• Would you like to shorten your term by a year or two without raising your monthly payments
• Would you like to put little or no money down
• Would you like to drive a better equipped car or move up to the next model line
• Is the down payment a problem?
• Do you prefer to invest your hard-earned cash elsewhere?
• Do you like saving $50 per month or more?
• Do you trade a car every 1-4 years?
• Have you ever traded a car before it was paid off?
• Do you like to keep up with the latest in technology?
   

If you answer "yes" to these questions, then
LEASING IS FOR YOU!

Leasing is simply taking the traditional way of buying a car and postponing your down payment until the end.

EXPLANATION OF POSSIBLE FEES WHEN AQUIRING A NEW VEHICLE

In car leasing, as in buying, there can be charges, fees, and taxes that often surprise newcomers. Fees can differ by dealer, leasing company, and by the state in which you lease. The same charge or fee can sometimes have different names in different lease contracts. Some of the fees charged in leasing are the same as the fees charged when buying.

Let's take a look at the most common types of car lease charges, fees, and taxes:

First Payment
A lease is different than a loan in that payments are made at the beginning of the month in which they're due, while loan payments are paid at the end of the due month. This means you make your first lease payment in cash at the time you sign your lease contract. The first payment is NOT considered a down payment or a security deposit — it is actually your first monthly payment on your lease.

Security Deposit
A fee that is usually about the same as, or a little more, than your monthly payment. It will be refunded to you at lease-end, less any disposition, mileage, or damage charges. If you have a good credit rating you may not have to make a security deposit. Many leases require no security deposit. Making a security deposit is not the same as a down payment, which you don't get back at the end of your lease. Some lease companies offer a lower lease finance rate in exchange for a large security deposit.

Acquisition Fee (Bank Fee)
An acquisition fee, sometimes called a "bank fee," is an administration fee charged by the leasing company, much like points on a mortgage. This fee is usually not explicitly specified in your contract, but is included in your Cap Cost when calculating monthly payments. You should ask about it if you don't see it mentioned. This fee is typically in the range of $250 to $900, depending on the lease company. High-end luxury vehicles have higher acquisition fees. Although this fee is set by the lease company, it is becoming more common for dealers to "bump" this fee to add a little extra profit for themselves. If you feel this fee has been "bumped" by the dealer, you can attempt to negotiate it down. Otherwise, acquisition fees are not negotiable.

Disposition Fee
A typical fee, set by the lease company, that is due at the end of the lease to compensate the leasing company for the expenses of selling or otherwise disposing of a vehicle. Some leasing companies might also require this fee even if you decide to purchase your vehicle at the end of the lease. In this case, try to negotiate it out of the deal. $250 to $450 is typical for this fee, if the fee is charged at all. Some lease companies do not charge a disposition fee.

Down Payment
Down payment, regarding a car lease, refers to the part of the initial money paid at lease inception that serves to reduce the amount owed on the lease. It is usually called, Capitalized Cost Reduction, or simply Cap Cost Reduction. A modest down payment can often significantly reduce monthly payment amount.

Tax on Down Payment
If you make a down payment (capitalized cost reduction) on your lease, you will be charged state and local sales tax on the down payment amount in most states and in Canada. It is payable at the time you sign your lease contract.

In some states, such as Texas and Illinois, you must pay the entire sales tax up front, either on the sum of all lease payments or on the full sale price of the vehicle, depending on the state. Often this amount is folded back into the capitalized cost and financed with the lease. See below for more details.

Documentation, Registration, License, Tag, and Title Fees
These are the same fees you would normally expect to pay in your state, whether you lease or buy your new car. Some of these fees are not official fees but are often given official-sounding names, and are actually extra dealer profit. It's often difficult to determine which are official and which are not.

Documentation fees are typically charged by dealers as a kind of administrative fee. The fee amount ranges from about $250 to $600, much of which is simply added profit for the dealer. Many dealers have the fee pre-printed on the sales form to make it seem official. Some dealers are willing to reduce or waive documentation fees, and others simply refuse to as a matter of policy.

Tag and registration fees are official fees required by state and local governments. Dealer simply collect the fees, without markup, and pass them along to the appropriate government agencies.

When are fees and taxes paid?
When a lease contract is signed, there are certain fees, taxes, and charges due as up front cash. These include the first month's payment, any down payment, sales tax on the down payment, any security deposit, and official state/county license/tag/registration fees.

The total of all these fees are usually called "lease inception" fees, or "drive out" costs.

Notice that any down payment is only a part of the total lease inception amount. This sometimes confuses leasing consumers who mistakenly think of the total inception amount as a down payment. See the following article for more details

Tag and registration fees are usually collected as up-front cash.

Other fees such as doc fees and admin fees can either be paid up front or included in the capitalized cost.

The acquisition fee is included in the capitalized cost and is financed along with the lease. It is not typically paid up front in cash, although it might be for some leases.

The disposition fee is collected at the end of the lease when a vehicle is returned to the lease company and, in some cases, when the vehicle is purchased. Some states charge sales tax on the disposition fee.

Security deposits are returned by the lease company at the end of a lease.

Sales Taxes
U.S. states (except New Hampshire, Alaska, and Oregon) and Canada impose a sales tax on motor vehicle purchases by consumers. In the case of leasing, the leasing company passes the sales tax along to you, the lessee. However, the way it's done can be quite different from state to state, even region to region.

The most common method is to tax the monthly lease payment at the local sales tax rate. This means you only pay tax on the part of the car you lease, not the entire value of the car. For example, if your local sales tax rate is 5%, simply multiply your monthly lease payment by 5% and add it to the payment amount to get your total payment figure.

As a side note, with this method you are paying sales tax not only on the depreciation amount of your payment, which is fair, but you're also paying tax on the finance charges, which is not so fair. In no other type of business transaction do we pay sales tax on interest or finance charges. This is an area for improved state tax legislation
Generally, you pay sales taxes for the locality in which you live, not for the locality in which the car dealer has his showroom. If you move to a new location at any time during your lease, your taxes will probably change and, in some cases, require a cash payment. If you plan to move soon, contact the taxing agency in the state to which you'll be moving to determine how it will affect you and your lease.

Generally, you pay sales taxes for the locality in which you live, not for the locality in which the car dealer has his showroom. If you move to a new location at any time during your lease, your taxes will probably change and, in some cases, require a cash payment. If you plan to move soon, contact the taxing agency in the state to which you'll be moving to determine how it will affect you and your lease.