What are Dealer Fees When Buying a Car?
Many dealerships charge fees when selling new or used cars. These fees might cover the cost of new license plates, dealer prep services, or sales tax.
It's important to understand these fees so you know which ones you might be able to negotiate. Learning the most common dealer fees when buying a car helps you save money as you begin the car buying process.
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What Are Common Dealer Fees When Buying a Car?
Car buying fees or dealer fees are the extra costs the dealership charges when someone buys a car. Common dealer fees include:
Destination Fees
Destination fees refer to the dealership's transportation costs. The car dealership might charge you this fee if you buy a new car that needs to be delivered. This fee depends on the location of your new vehicle.
You can expect to pay less in destination fees if the vehicle you're buying is already on the lot. If you order a specific model or color, the dealership might have to pay to transport it to the lot so you can pick it up.
Some dealers might also charge a dealer preparation fee in addition to the destination fee. This charge covers the cost of a car wash or professional cleaning before they hand it off to you. This fee might be included in the cost of the car or listed as a separate charge on your sales contract.
Delivery and preparation fees should already be part of the destination fees. If the dealer tries to add this fee on top, you'll want to check the fine print to avoid being double charged.
Documentation Fees
Documentation fees, sometimes referred to as doc fees, refer to the handling and processing of paperwork. Dealerships spend a lot of time preparing the sales paperwork, and some might charge you for this service. The price of doc fees can vary widely. Some dealerships charge less than $100, while others charge hundreds of dollars in doc fees.
Some states have a maximum doc fee a dealership can charge. For example, California has doc fee limits capped at $80.
On average, according to Consumer Reports, you can expect the median doc fee to be between 1 and 3 percent of the vehicle's total cost. This service can save you a trip to the Department of Motor Vehicles because the dealer handles all the paperwork for you. Negotiating the doc fee is not usually possible since it covers the required paperwork.
Title and Registration Fees
All states require drivers to register their vehicles. When you buy a car from a dealership, the dealer might take care of the registration process for you. This includes ordering the car's title and securing the license plate.
The dealership charges you the cost of registration and title, and some might charge an additional fee for completing this requirement on your behalf. Title and registration fees typically depend on the value of your car. Cars with higher price tags often have higher registration fees. This means you can expect new car fees to be more expensive than used car fees.
Sales Tax
All U.S. states charge sales tax. Similar to how you have to pay tax when buying goods, you must also pay tax on a new vehicle. The sales tax rate you pay varies depending on the state in which you live.
Some states allow buyers to deduct the value of a trade-in from their purchase price, reducing their tax liability. Some buyers are surprised at the cost of sales tax, which can be a significant percentage of your purchase.
For example, if your state charges a combined 8 percent in state and local taxes, and you buy a $40,000 car, you can expect to pay $3,200 in taxes. If you have a trade-in worth $10,000, you can reduce your tax liability to $30,000 or $2,400. The car price directly correlates to how much you can expect to pay in taxes.
Buyer rebates and incentives can also reduce your tax liability. However, only some states allow you to use rebates and incentives to reduce your tax obligations.
Warranties and Maintenance Costs
Some dealers roll the cost of an extended warranty or maintenance plan into your fees. You can decline these if you don't want to pay the extra cost. The dealer might add other warranties to your payment, including tire and wheel protection, a powertrain warranty, a restraint systems warranty, or a corrosion warranty.
Always consider whether the cost of an extended warranty is worth the added fee. In some cases, it makes more sense to build your own emergency fund to handle unexpected car repairs. Extended warranties might be good investments on some cars, but it's important to consider how much you value the added financial protection.
GAP Insurance
Some lenders might require you to purchase guaranteed asset protection (GAP) insurance. This insurance policy is in addition to your traditional insurance plan. It covers the difference between the value of your vehicle and your auto loan. The car price you pay and how much it's worth affect how much you'll have to pay for GAP insurance.
GAP insurance might be necessary if you buy an expensive car, pay over market value, or put a small deposit down on the auto loan.
Market Adjustment Fees
A market adjustment fee means the dealership has adjusted the price of a vehicle to be higher than the manufacturer's suggested retail price (MSRP). This might be because the vehicle is part of a shortage or is currently in high demand.
You don't have to pay the difference, but the dealership also doesn't have to sell you the car. You might have room for negotiation with market adjustment fees, depending on how much the dealer has increased the price of the vehicle.
Advertising Fees
Car dealer fees might also include advertising fees. An advertising fee is the dealership's attempt to recoup the funds they spent advertising the vehicle.
You might be able to negotiate extra advertising fees that come from the dealership. Manufacturers might also charge an advertising fee, which is harder to negotiate.
Inspection and Emission Fees
Some states require dealerships to conduct inspection and emission tests before selling a vehicle. This is usually a flat rate fee and might not be negotiable if the state requires it.
Some states allow buyers to manage this requirement independently, meaning you can hire your own mechanic to complete an inspection.
Loan Protection Insurance
Some dealers add loan protection insurance automatically to a new car purchase. This protects you from repossession if you lose your job. The fee is usually optional, and you should be able to decline it if you don't want it.
VIN Etching
Your vehicle identification number (VIN) is the identifying code of your vehicle. Some dealerships charge you an extra fee to etch the VIN into your car's windshield so you always have easy access to it. You can usually decline this service.
Loan Payment Fees
Many dealerships also provide lending. Some charge extra fees in addition to the usual interest rate. For example, a dealership might try to charge a payment fee, which is a monthly fee for using a bank transfer to pay your monthly payment. Auto loans come with their own fees, so when dealers charge added fees, it can lead to high payments.
How Much Are Dealer Fees?
Dealer fees range depending on the location and price of the vehicle. You can expect to pay anywhere between 8 and 10 percent of the car's price in dealer fees. These fees almost always include sales tax, doc fees, and registry fees.
Some fees also depend on where you live and how much the dealership charges for state sales tax or title and registration fees. Different states also have different laws about trade-ins and whether you can use one to reduce your car price and tax liabilities.
Are Dealer Fees Negotiable?
You might be able to negotiate some fees. Others, however, are nonnegotiable. For example, most dealerships will require you to cover the cost of sales tax and registration. All drivers must pay tax, regardless of the car's price or where they buy it.
You might be able to negotiate a lower price on the purchase of the vehicle, which can make up for the additional fees. Other areas of negotiation include market adjustments, GAP insurance, or loan protection insurance plans.
If the dealer has already included fees in the total cost of the car listed on the sticker, you might have less room for negotiation. For example, a dealership might be more willing to negotiate advertising fees that aren't included in the final car price you agreed on.
Tips to Avoid Dealer Fees
You might be able to save money on certain fees. Here are a few tips to keep your new or used car fees to a minimum:
Compare quotes among different dealers: You have a right to compare fees among different dealers when car shopping. Comparing prices also gives you a better idea of what different dealers in your area charge for things like doc fees.
Know the most common fees: Understanding the most common fees can help you know what to expect during the car buying process. This also helps you save money because you know which fees you can negotiate.
Negotiate the price of the car: You might be able to negotiate the car's price, which can help offset the cost of high fees. Many dealers are willing to negotiate to complete the vehicle purchase.
Price shop: In addition to price-shopping cars and fees, you can price-shop policies such as warranties and GAP insurance.
Choose a lower-priced car: While you still have to pay fees on used cars, they're often less than what you'll pay with a new car out the door.
Trade in your used car: Trade in your used car to lower your new car's final price and tax obligations.
Buy through a private seller: Buying through a private seller can help you avoid some fees. While you can avoid the documentation fee, for example, you'll have to file the paperwork yourself.
Negotiate for extras: Even if the dealer is unwilling to negotiate doc fees, they might be willing to give you a few extras to make up for the difference. Consider asking for floor mats or a truckbed cover in your negotiations.
Handle tasks yourself: Some dealers might reduce or drop their fees if you're willing to complete those tasks yourself. For example, dealerships often charge much more than a local mechanic for VIN etching services.
While you might not have much control over things like title and registration fees or doc fees, you can decline extended warranties. Give yourself plenty of time to buy your next car so you can prepare and negotiate for these fees.
What to Look for When Reviewing Your Paperwork
Some dealers might try to add extra fees to your sales contract. This is why it's so important to review each fee carefully. Some car buying fees/dealer fees, such as the vehicle registration or dealer documentation fees, are expected, but others might not be necessary.
Look for fees you might be able to negotiate, including shipping and handling or prep fees. Always read the fine print and ask questions if you're unsure about a specific fee.
A new car purchase often comes with a lot of paperwork, which can make reviewing every page overwhelming. One easy way to know what car dealer fees you're paying is to look for sections of the contract with dollar signs. Never feel rushed as you review and sign the sales contract. Some dealers also roll the doc, title, and registration fees into your car loan.
Laws require all dealers to include a copy of the federal truth and lending disclosure, which carefully lists all fees, including the doc fee, vehicle registration fee, dealer documentation fee, destination charge, and your final paperwork filing fee. The document should show you your costs out the door.
Prepare for your new car purchase by reviewing the most common fees. Dealers often charge things like document fees to recoup the costs they spend. Being aware of these fees helps you better understand how much you'll owe each month for your new car.
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