August 9, 2017
I recently leased a new car. I thought I did a good job negotiating the terms of the lease. However, when I reviewed the final terms of my agreement, I noticed it included these two items:
Lease acquisition fee: $595.
Documentation fee: $499.95
A total of $1094 was included in the calculation of my monthly lease fee, and I completely missed it. If I had known, could I have negotiated a better deal?
There’s probably not much I could have done about the lease acquisition fee. According to leaseguide.com, it’s charged by lease companies and not imposed by dealers. Dealers don’t typically profit from this fee, although Lease Guide notes that “…some lease companies may “kick back” part of the fee to dealers as a reward for sending them business.”
If I had paid attention to this fee, I would have asked whether it reflected the actual charge by the lease company or included a kickback. Whether any response would have been accurate is another issue.
It would have been interesting to check the lease acquisition fee charged by other dealers for the same car. If it was lower, that would have told me my dealer was marking it up.
You don’t have to worry about lease acquisition fees if you are buying a car and not leasing.
The “documentation fee” (also known as “conveyance fees”, “processing fees” or “service and handling fees”) stands on an entirely different footing. Some states put a cap on documentation fees. You can check here to see if your state is one of them. I live in Florida, which (unfortunately) has no cap on these fees.
A documentation fee ostensibly covers the cost the dealership incurs to process a vehicle purchase or lease, like paperwork and personnel involved in the sales process. Why this isn’t part of a dealer’s overhead is beyond me.
Leaseguide.com minces no words about documentation fees: 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.
According to Edmunds.com, Florida has the highest average fee. Since there’s no cap, some dealers charge as much as $999, which is completely indefensible.
If I had been better educated about this fee, I would have tried to negotiate it. Failing that, I would have checked the documentation fees charged by other dealers.
While you should be aware of lease acquisition and documentation fees, they may represent only a small potential savings compared to what you might save by negotiating other aspects of your lease or car purchase.
Next time, I’m going to use Costco’s auto program and let them handle all aspects of the transaction. Here’s what I forgot to include in my calculations: The value of my time and of avoiding the aggravation and stress of dealing with those who are far more skilled in these negotiations than I will ever be.
My thanks to all those who subscribed to my YouTube investing channel.
For those of you who didn’t, I’m extending my offer of a free digital download of my book, The Smartest Sales Book You’ll Ever Read if you do so now.
All you have to do is subscribe to my YouTube channel and contact me at hello@danielsolin.com to claim your free digital copy of Smartest Sales.
Thank you for helping me assist investors in reaching their retirement goals.
I recommend this article by Gary Foreman that appeared in usnews.com. He discusses 7 car dealership fees and services to avoid. I wish I read it before I leased my car.
https://youtu.be/8t8VqokOpj4
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