Lease End and Disposition Fees
You must be aware of the fees and charges that are due at the end of your lease. Unfortunately, these fees are often “glossed over” by the dealership. Keep in mind that when you enter into a lease contract, you are obligating yourself to the exact terms of the lease. These fees are generally not negotiable and are put into place by the leasing company to protect its investment in the vehicle. Beware of the salesperson who will tell you: “Don’t worry about what happens at the end. Just bring the car back and we will take care of what needs to be done.” What the salesman tells you and what may actually happen are two different things.
There are basically three types of charges at the end of the lease: the Disposition-Fee, an Excess Mile Adjustment and a Vehicle Condition Adjustment.
The Disposition Fee
The disposition fee is used to offset the bank’s expense to sell the vehicle at the end of the lease. These expenses may include vehicle cleaning and reconditioning costs, vehicle inspection fees, transportation costs, storage fees, auction fees, administrative costs, and funding costs until the vehicle is finally sold.
This fee is always outlined in the lease agreement and will never increase or decrease at the end of the lease. It is useless to try to get a dealer to waive or discount this fee. It is not a profit center for the dealership, but is put in place by the leasing company. As a rule, always ask for the amount of the fee before signing any paperwork.
Excess Mileage Charge
The other factor you should consider is the excess mileage adjustment charges. Your lease payment will be based on the number of miles you will be driving per year. The number of miles you drive over the life of the lease will determine the Residual value. The more miles you drive, the less the car will be worth at the end of the lease. For example, a 3 year old car with 50,000 miles is obviously worth less than a 3 year old car with 30,000 miles.
The tendency is to look for the small upfront monthly payment by selecting a low monthly allotment for miles. However, if you drive more than your allotment, it will be more expensive at the end of the lease. Currently, the cost of excess miles at the end of a lease will be somewhere between 20 and 30 cents per mile. Almost always, it is cheaper to include the miles in your original lease payment. When customers include their excess miles in the lease payment, they can normally save about 5 cents per mile.
On the other hand, you do not want to allow for more miles than you will actually drive. Historically, if you drive 12,000 miles a year, there is no need to allow for 15,000 miles per year. The mileage options are often preset at 7,500, 10,000, 12,000 or 15,000 miles. If you plan to drive more than 15,000 miles, then you can usually buy increments of 1,000 per year after that. If you drive 13,000 miles per year, you shouldn’t allow for 15,000 miles; instead, you should construct a lease for 12,000 and just pay the extra 1,000 at the end of the lease. It is better to calculate the total lowest cost.
This math is easy to figure out. Simply ask the salesperson for the excess mile charge and then find the closest mile increment that fits your driving habits. Many customers like the buffer of having extra miles available to them. However, if you have never driven 15,000 miles, you should not lease a car that allows for 15,000 miles, because you will be throwing away money.
Excessive wear is not as easy to calculate. At the end of the lease, the leasing companies will have a defined outline of the expected condition of the vehicle. Please review these actual conditions before agreeing to a lease. This means that most of the time you will have to read a blank lease agreement. Ask the salesperson to provide you with one before you agree to a payment.
In certain states, there is legislation that limits the amount of excess charges banks can charge you. The lease agreement will outline the exact criteria.
Most of the time, excessive wear charges will include the following:
• Broken or missing parts
• Dented or damaged body panels or trim
• Cuts, tears, burns, or permanent stains in the fabric or carpet
• Excessively worn tires
• Cracked or broken glass
• Poor-quality repairs
Also, you will be obligated to have all of the scheduled maintenance completed on the vehicle. If you did not service your vehicle at a franchise dealer, you may have to provide all documentation that is has been maintained by a certified service professional