What’s Due At Lease Signing? A Comprehensive Guide

Ready to drive home in your brand-new lease car?

Easy on the gas: first you’ll have to settle the paperwork and the upfront payments.

Sometimes the pile of papers at contract signing are the most intimidating part of car shopping, and many customers don’t understand how much money is due and for what charges. This can spell surprise, disappointment and a sense of powerlessness – exactly what you don’t want as a kickoff to your lease period!

Get informed and learn here what you’re expected to pay at signing for a car lease. Some charges are negotiable, others more set in stone, but there are many different ways to structure your lease and arrange the payments to your advantage.

businesswoman with contract

Always pay upfront:

These charges will almost always be due at signing. In certain circumstances (see the “Sign and Drive” section below) they can be rolled into monthly payments, but most often they must be paid upfront.

• First month: Just like when you rent an apartment, monthly payments are usually due at the beginning of the month. (Unlike payments for a car loan, which come at the end of month.) The first month’s payment is not an extra fee but is still due at signing, no matter when in the month you sign the contract.

• Bank fee/acquisition fee: Different names for the same thing. This is the amount charged by the leasing company to set up the lease, usually from $250 to $1,000 depending on the quality of the car.

• DMV/registration fees: You will have to pay license and registration fees to the state and local government, just like if you purchased the vehicle. This goes straight to the government agencies.

• Documentation fee: This is an administrative fee charged by the dealership for handling the car’s registration paperwork. It’s typically between $150 and $300, but varies dealer to dealer.

Might have to pay upfront:

These charges are, respectively, always required (taxes), usually required (downpayment) or sometimes required (security deposit). However, they may or may not be due at signing.

• Taxes: Benjamin Franklin was right about the two certainties of life, even when it comes to car leasing! Sales taxes on a lease car usually only apply to a portion of the car’s value, namely its residual value (the amount that the car depreciates over your lease period). In Illinois and Texas, however, you will have to pay sales tax on the entire value of the car. Whether or not you have to pay upfront also varies by state. Some require it, in others it’s rolled into monthly payments.

• Downpayment: A downpayment is required unless you can get approved for a zero-down lease deal. This is a chunk of cash that comes out of your total monthly payments. A larger down payment means lower monthly payments and can help you get approved for a lease if you have poor credit, but also puts you in more risk in case the car is wrecked or stolen during your lease period. If you agree to a downpayment, it’s due at signing.

• Security deposit: Some but not all leases require a security deposit. This is a charge, often close to the amount of one monthly payment, that will be refunded at the end of the lease period – unless you’re marked down for excess wear and tear or overmileage, in which case those fees will be subtracted and you get back whatever’s left. This can often be negotiated or waived entirely, especially if you have good credit or you’ve leased from that company before.

How to structure a car lease

many doors

As many lessees, so many structures to pay for a lease!

Well, not exactly, but there are quite a few ways to peel this banana. A few popular options:

Sign and drive:

Sign and drive is a neat and clean way to get on the road without a penny upfront.

It’s important to distinguish between “sign and drive” and “no money down.” These sound similar but actually are completely different creatures.

In a no money down lease deal, you don’t pay a down payment on the vehicle. This means less money due at signing, but you’re still on call for taxes, fees and the rest. Zero-down deals also result in higher monthly payments, though you may be able to offset this by paying all your taxes and fees upfront.

In a sign and drive arrangement, you just pick up your car and drive away, with down payment, taxes, fees and everything rolled into your monthly payments. It means you can start your lease without giving a big chunk of cash out of pocket, but your monthly payments will be much higher as a result.

You need very good credit to be approved for sign and drive.

A rule of thumb is that the worse your credit, the more you’ll have to pay upfront, since you’re considered more of a risk to the bank. So if you have stellar credit, you can give sign and drive a shot.

One pay leasing:

This unconventional leasing strategy is the opposite of sign and drive. Instead of driving off without paying and rolling everything into monthly payments, you just pay everything up front.

Downpayment, two or three years of monthly payments, taxes, fees, surcharges, and why not a cup of coffee while you’re at it? Get it all down on the table and out of your way.

If you’re interested in one pay leasing, I recommend learning about it in detail from my previous article. Many people haven’t heard of it, probably since paying that amount of cash upfront isn’t accessible to most car leasers, but it can actually save you money in the long run since you won’t owe any interest on the lease.

It’s also a sure way to get approved for a lease if you have bad credit but a lot of cash in the bank.

Capital Motor Cars’ recommendation:

At Capital Motor Cars, we have facilitated lease contracts for thousands of drivers. While there’s no one best structure for everyone, an arrangement that seems to work well for many people is to pay the first month, acquisition fee, DMV and documentation fees upfront, while taxes are rolled into payments.

This creates a nice balance between keeping monthly payment low while paying only a reasonable sum upfront.

Other common options are to pay only the first month, the first month and DMV, or even only taxes upfront. I encourage you to familiarize yourself with the different elements of a lease, learn what you can and can’t negotiate, and consider the tradeoff of upfront vs. monthly payments to figure out what’s best for you.

Ignite: empowering customers to structure their own lease terms

lighting match

One of the most innovative and influential capabilities of Ignite, our online car leasing tool, is that it gives car shoppers the power to structure their own lease and set the terms that they want. This brings a new (and much-needed) level of transparency and customer empowerment into car leasing.

If you’re looking to get the best deal on a lease car and you want it on your own terms, check out Ignite. You can go step by step through the entire car shopping process quickly and easily, from the comfort of your own home, with the support of a team of experts on call.