The main difference between buying and leasing an auto is the type of financing you receive. When buying a vehicle, you secure purchase financing, while leasing results in use financing. All other differences are a direct result of this fact. One of these differences is the deposit you make at the lease inception, a fee that does not apply to purchase financing. Whether or not you receive all or a portion of your initial deposit at the end of your lease depends on the condition of your auto and the terms of your lease.
Down Payment versus Deposit
The number of fees you pay at the beginning of your lease may make it difficult to distinguish one from the other. Especially confusing to some is the difference between the down payment and deposit. These are not the same. A down payment, which your lender may or may not require and you never get back at the end of the lease, reduces the total amount you finance and lowers your monthly payment. A deposit, also known as a security deposit, is a flat fee your lender charges as protection in case you damage the vehicle or violate the terms of your lease agreement. A lender may return this amount to you at the end of your lease agreement. Not all lenders charge a deposit, especially if you have good credit or are a returning customer. When they do, the minimum deposit you pay is most often the same as your monthly lease payment
Factors Affecting Your Refund
An auto lease specifies the number of miles, usually 12,000 to 15,000, that you may drive over the term of the lease. Mileage in excess of this amount reduces the value of the auto, and you will incur an excessive mileage charge according to the terms in your lease agreement. Another factor that can affect your deposit refund is excessive wear and tear. This includes both visible and unseen damage, such as broken or missing auto parts, body damage, cracked or broken windows, permanent damage to the carpet or upholstery fabric, excessive wearing of the tires and subpar repairs.
Time Frame
When your lease ends and you return the auto, it may take up to a few weeks to find out how much of your deposit to expect as a refund and to receive any amount due. After receiving a cost estimate for excess mileage, wear and tear or damage to the auto, your lender checks to see if there are any other costs, taxes, or fees, such as parking tickets, still outstanding. When your lender compiles this information, you will receive a refund of your deposit, minus any outstanding charges.
Considerations
If you have a few extra dollars but less-than-stellar credit, consider offering to make a larger deposit than your lender requires. According to LeaseGuide.com, you may be able to negotiate a lower finance rate and reduce monthly lease payments by increasing the size of your deposit.
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