Next time you visit a dealer to purchase a car, ask about the acquisition fee. This is a charge you will incur if you opt to lease rather than buy your car, regardless of whether it is new or used. Make sure he explains if the fee will be included in the upfront payment you are required to make prior to driving off, or whether it will be added to the cap-cost of the lease.
What Is an Acquisition Fee?
The acquisition fee, sometimes referred to as a bank fee, is the cost of setting up a lease and is required of the dealer by the lender. It covers administrative expenses, such as getting a copy of your credit report and verifying your insurance status. In most cases, this charge is passed on to you and typically is not disclosed on your lease contract. Instead, the fee is routinely built into the loan or lease, making it difficult to notice.
Basis for Car Loan Fees
When you approach the dealer and want to lease a car, the dealer may offer to arrange for financing. The dealer then approaches a financial institution to help facilitate the transaction. If the lender determines you qualify for the loan, the dealer will be paid and you can drive off with the car. In effect, the lender purchases the car and loans it to you until you pay it off. For its trouble, the financial institution will charge you an acquisition fee, typically based on your credit score – the less stellar your credit, the higher the fee to compensate for the additional risk of default.
How the Acquisition Charge Works
The auto loan acquisition fee may be explicit or implicit. With an explicit fee, your conditional finance contract will spell out the total amount borrowed that includes the acquisition fee. The fee amount is withheld by the lender while the rest of the loan is passed on to the dealer. With implicit car loan acquisition fees, the financial institution advances the dealer less than the loan amount that has been approved. The dealer may accept to absorb the fee out of his gross margin but typically, the dealer will bake the acquisition fee into the price of the car. Either way, you will pay the acquisition fee plus interest over the life of the loan.
Know Your Options
Regardless of your credit score, you can avoid paying the acquisition fee by arranging for financing before approaching the dealership. You also can negotiate with the dealer. In most cases, dealers will mark-up the acquisition fee and can reduce it from the cap-cost of the lease – that is, the price of the car. You can reduce the fee by buying a used car – the first owner will have dealt with the worst part of depreciation. You can also avoid dealership financing altogether by buying with cash.
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