Watch Out for These Dealership Fees When Buying a Car
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Whether you're leasing or buying a new car, you should carefully check all the numbers on the agreement. Use the calculator on your mobile phone or bring one with you (if necessary, borrow one from the salesperson) to total them up yourself. Make sure that the contract shows the agreed-upon purchase price or, if leasing, the capitalized cost, and that your cash down payment, trade-in allowance, and any rebate have been subtracted from that amount.
If you're financing the vehicle through the dealer, make sure the right interest rate (or "money factor" in the case of a lease) was used to calculate your monthly payment.
As you check the agreement, you'll probably encounter various additional charges and dealership fees. In addition to legitimate ones, there may be others that are questionable or entirely unnecessary.
While you go through the contract, you can refer to the charts below to determine which dealership fees you need to pay, which fees you might be able to negotiate, and which fees should be dismissed entirely.
Remember, unless you pay fees and taxes up front, they're added to the total package and you'll pay interest on them.
Here's a rundown of some of the dealership fees and major charges you'll encounter:
Destination Charge
This fee covers the cost to deliver the vehicle from the factory to the dealership and is shown on the vehicle's window sticker. It's set by the automaker and is typically the same for all models within a particular brand.
Yes, you have to pay this charge. It's a straight pass-along cost.
One thing to look out for: Some dealers have been known to sneak in an additional delivery fee, itemized on a second window sticker pasted near the official one. If you see additional "pre-delivery inspection," "delivery," "destination," or "dealer prep" charges, you should refuse to pay them.
Title and Registration Fee
The dealership usually has arrangements with your state Department of Motor Vehicles (DMV) for title and registration documents, and may issue you temporary tags or permanent license plates as well. You'll have to pay those fees, too, which are fixed by your state.
One thing to look out for: If you're transferring plates from another car rather than applying for new plates, the registration fee is generally a bit lower. Make sure you're not paying for new plates if you're not getting them. You can check the fees by calling your local DMV or using its website.
Documentation Fee
Sometimes called a "doc fee" or "conveyance fee," this is supposed to cover the dealer's cost for processing the paperwork for the purchase, title, and registration. Some states strictly limit this dealership fee, but most don't. Depending on the state, it can run from $100 to $500. This figure is generally preprinted on the sales contract.
We have found it impossible to get our local dealers to reduce or eliminate this fee. Instead, we make it part of the price negotiation: Try to get the dealer to reduce the price of the car by a similar amount, and let the fee stay on the purchase agreement. As a fallback negotiating tactic, ask that some accessory, such as floor mats, wheel locks, or a cargo organizer, be thrown in free of charge.
State Sales Tax
If you're buying a vehicle in the state in which you live, you'll have to pay the sales tax. But states vary in whether they charge tax on the whole amount or just on the purchase price less a trade-in. If you're buying a car out of state, you'll pay sales tax when you register the car in your home state. Most dealers can handle registrations in other states, too.
But if you intend to relocate soon after your purchase or lease, or if you're buying the vehicle for somebody who lives in another state, you'll probably have to register it temporarily where you bought it, then reregister it in the new state of residence before the temporary registration expires, usually within 30 days.
You can claim a refund for the first state's sales tax by submitting proof that you've reregistered the vehicle, and paid tax, in the state where permanent tags are issued.
Advertising Fee
Manufacturers charge their dealerships for a brand's national advertising, and they include that charge in the dealer-invoice price. Regional dealer associations may also levy assessments to cover local newspaper, radio, and television ads. And it has become increasingly common for dealers to pass along a few hundred dollars of that expense to each new car sale or lease.
This charge should be disclosed and agreed to before you find it on the closing paperwork. Some dealers list it on a separate sticker posted in the vehicle's window. If you're hit with an advertising charge from out of the blue, challenge it and ask to have it removed.
Fee | What It's About |
Documentation fee or conveyance charge | A charge of $150-$300 for processing documents that establish your title and registration is reasonable. Question any charges that are higher than $300. |
Guaranteed Auto Protection (GAP) insurance | A must for leased vehicles. It covers the difference between your payments over the life of the lease and the residual value of the vehicle in case it is stolen or totaled in an accident. |
Title and registration | Let the dealership handle the formalities of establishing you as the new owner of the vehicle and obtaining temporary tags. Expect the dealer to pass along what the state charges—typically between 1 percent and 3 percent of the vehicle's cost—plus a documentation fee. |
Sales tax | Some states calculate tax on the full price of the car, but most figure tax on the difference between the price of the new car and the trade-in, if appropriate. |
Destination charge | A standard charge that covers shipment of the vehicle. Question any secondary "delivery fee" that's listed on the contract. |
Fee | What It's About |
Advertising charge | Increasingly common, regional dealer cooperatives assess fees to support promotional efforts. If this charge shows up only at the closing, contest it. But you may end up having to pay. |
Extended warranty | Extra coverage for major repairs that may be needed after the manufacturer’s warranty expires. It’s your call. But if you do buy one, we recommend getting coverage backed by the vehicle manufacturer or an established third-party company. You don’t have to buy on the spot; take your time to compare contracts. |
Additional dealer markup | Sometimes added to hot-selling models for additional profit. You can contest this, but if the model is in high demand, the dealer may not have any incentive to work with you. |
Fee | What It's About |
Dealer preparation fee | Most manufacturers pay dealers to remove the coatings and coverings that protect the vehicle during shipment and to clean up the car for you. There is no justification for you to pay the dealer again for this service. |
Credit life insurance | Your survivors will be able to pay off the vehicle if you die before your payments end. Term life insurance is cheaper, but make sure it’s enough to cover loan payments. |
Disability insurance | Covers your car payments if you are unable to work because of a disabling accident or extended illness. You may already have disability coverage through your employer; if not, you can purchase it more cheaply elsewhere. |
Pinstriping | Expensive tape that a detailing shop can put on for you at a lower price than the dealer can. |
Rustproofing/undercoating | Today’s vehicles are manufactured to withstand corrosive weather and road conditions, so you will not need to pay for additional treatment by the dealership. |
VIN etching | This is an anti-theft measure in which the vehicle identification number (VIN) is etched into the glass. Some states require that dealers offer it to you, but none require that you buy it. It can be done less expensively elsewhere or even by yourself with a $25 kit. |
Fabric protection | This is just expensive Scotchgard. Just say no. |
Paint sealant | It is little more than a vastly overpriced liquid wax you can easily purchase from an auto-supply shop for $10 or less. |
Security/anti-theft system | An alarm or theft-recovery device can reduce your car insurance premium. But the high price you pay for a dealer-installed system will likely negate any such discount. |
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