When you lease a car, you agree to make monthly payments for a set period of time, after which you'll have the option of returning the car to the dealer. Leases allow you to drive a new car every few years, but they also subject you to fees and costs that aren't present when you buy a car. One such fee is a security deposit, which some dealers ask for in addition to your standard down payment.
To Cover Damage
One of the reasons auto dealers require you to pay a security deposit when you lease a vehicle is to cover any damage that the vehicle sustains while you drive it. Your auto insurance will pay for major accident damage and the lease allows for normal wear and tear that is not a result of your negligence, but other forms of damage may reduce the value of the car and make you liable for a damage fee when you return the vehicle. To eliminate the chance of you not being able to pay for damage, dealers ask for a deposit up front and use it to pay for repairs, cleaning or depreciation.
To Cover Mileage
Mileage fees are similar to the damage fees auto dealers charge on a lease. Just as the dealer expects a certain amount of wear and tear, with you responsible for the excess, your lease includes a set number of miles you can drive before your lease ends. If you exceed this limit, which is often around 12,000 or 14,000 miles per year, the dealer will charge you a mileage fee at a fixed rate per mile. These fees can add up to large amounts, and your security deposit serves as a guarantee that you'll be able to pay for any overage.
Credit Considerations
Not all auto dealers require security deposits for leases, but those that do may use your credit history to determine whether or not you'll need to pay one. If you have poor credit, the dealer may ask for a security deposit because you pose more of a risk, both in terms of being able to make your monthly payments and being able to pay the fees associated with returning the vehicle. In other cases, regardless of your credit score, the dealer may ask you to pay a higher security deposit to gain access to a reduced financing rate. Paying less interest will save you money in the long term, so even if the security deposit is optional, you should consider paying it.
Getting Your Deposit Back
You stand to receive your deposit back when your lease reaches its end. If you decide to terminate the lease and walk away from the vehicle, the dealer will deduct any charges from the deposit, reducing the amount you get back. The dealer may also charge a disposition fee, which covers the cost of selling the vehicle that you turn in. All of these fees, if your dealer charges them, will be listed in your lease agreement. The security deposit you get back will be the full amount you paid minus any such fees. If you decide to purchase the vehicle, the dealer may subtract the security deposit from the payoff amount that you need to own the car outright.
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