What ‘Inception Fees’ Do You Need to Pay When Leasing a Car?

Leasing a car can be confusing when you’re not familiar with the terms of the deal. For example, terms like “cap cost” and “cap cost reduction” might sound like Latin to anyone who has never leased a car or even researched it. Another term is “inception fees,” which is the initial set of fees that you would need to pay when you lease a car. But what are they?

Acquisition fee

The acquisition is basically a “lease start-up” fee that is charged by the leasing company in order to set up the lease. In a lot of ways, it’s a way for them to make some extra profit off of the deal and it typically ranges from $300 to $1,000 depending on what kind of car you’re leasing. Luxury cars typically have higher acquisition fees associated with their leases.

One thing to note is that dealers will sometimes mark up the acquisition fee, so be careful of that. If they do mark it, up then you can typically negotiate it down. However, if there is no markup involved, then you won’t be able to negotiate it.

Illustration of a stack of cash over an auto sale document. (Chicago Tribune/Tribune News Service via Getty Images)

Security deposit

If you have ever rented an apartment, then you might be familiar with having to pay a security deposit for a lease. The security deposit basically covers any damages on the car if and when you turn the car back in. The deposit is then refunded back to you, unless there is excessive wear and tear on the car. The good news is, however, that not all leases require a security deposit, so most likely won’t have to pay one. But if you do, then it’s usually equal to the amount of one month’s payment.

Down payment

In lease terms, the down payment is known as the “cap cost reduction.” This payment is pretty straightforward, just like in a traditional car loan, but for a lease, your down payment mainly just lowers the monthly payment amount. Unlike a traditional car loan, you’re not really putting money down toward owning the car, so it’s advisable that you put little to no money down on a lease, if you can. If anything were to happen, like if the car gets stolen or totaled, then you will be out of the money that you initially put down.

Cars stand on display for sale at a Mercedes-Benz dealership during the coronavirus crisis
Mercedes-Benz models available for lease at a dealership | Sean Gallup/Getty Images

Documentation fee

The dealer documentation fee can range from anywhere $50 and $800 as it varies from state to state. This is a fee that dealers charge for the filing and sending the registration documents to the Department of Motor Vehicles, and while you might be eager to try and negotiate it away, you can’t. Fortunately, some states put a cap on how much a dealer can charge you for the documentation fee.

Tag, title, and registration fees

These are the fees that you need to pay in order to get the car registered in your state. The fees vary from state to state and again, they are not negotiable.

A Kia salesperson sells a car to a baby boomer
A Kia salesperson sells a car to a baby boomer | Susana Gonzalez/Bloomberg via Getty Images

Sales tax

This one is pretty self-explanatory, but one thing that you need to note is that your sales tax rate not only varies from state to state, but it can also vary between counties. You can check your local tax rate online to ensure that the dealer at the least gets the correct percentage. After all, you wouldn’t want to be charged 8% when your county’s rate is actually 4%.

First month’s payment

In addition to the other fees, you’re also going to be paying the first month’s payment when you sign off on a lease as well. In some lease deals, the first month’s payment is waived, and luckily, that means you’re actually getting discounted from the total lease amount, as opposed to just getting it deferred.

Salesperson showing vehicle to potential customer in dealership; Shutterstock ID 447213895; Purchase Order: -
Salesperson showing vehicle to potential customer in dealership; Shutterstock ID 447213895; Purchase Order: –

How to Get Out of a Car Lease Early

Lease inception fees

Those are the main components of every car lease inception. It’s pretty easy once you know what all of the terms mean and you no longer need to worry about looking at the dealer’s final numbers as if he’s trying to explain a calculus problem to you.