Dealer fees you should know when buying a car

After you’ve found a car you want and agreed with the seller on a price, looking over the sales contract’s fine print for fees might be the last thing you want to do. But don’t miss this important step.

While some dealer fees might seem relatively small compared with the car’s total price, the costs can add up. Some common fees you should look for include destination fees, documentation fees, and title and registration fees.

Some of these fees are costs that dealers are simply passing on to consumers, and there’s not much that can be done to avoid them. But with some fees, you may be able to negotiate them and sometimes even compare dealerships to save money on your next car.

Dealer fees you need to pay

These costs are either taxes or dealer fees that the dealership will pass on to the consumer — or fees that are included in the car-buying process. You should keep these costs in mind as you consider how much car you can afford.

Title and registration fee

Many dealerships will handle the process of registering the vehicle with your state’s motor vehicle agency, assigning the car’s title and ordering your license plate. The dealer will collect this fee and submit it to the state motor vehicle agency.

Sales tax

If your state — or municipality — has a sales tax on vehicles, you’ll have to pay it when you purchase your new car. The sales tax will vary based on the state you register your vehicle in. If you’re buying a car in a different state, the dealership may be able to register the car in your state and submit the sales tax to your state’s motor vehicle agency.

And while you can’t negotiate your sales-tax rate, some states will deduct the trade-in value from the sales price if you choose to trade in your vehicle.

Other common dealer fees

Let’s take a look at two common dealer fees you may be charged when buying a car.

1. Destination fee — The destination fee (also known as the destination charge) covers the cost the dealership pays to get the car delivered from the factory. Generally, you can’t negotiate the destination fee — you might still need to pay it even if you pick up your car at the factory.

2. Documentation fee — The dealer’s document fee — also called a processing fee, handling fee or conveyance fee — helps offset the dealer’s cost of preparing all the paperwork that goes along with selling a car. The fee can range from less than $100 to several hundred dollars depending on the dealership and where you’re buying the car. Some states will set a cap on document fees or require that the dealership charge everyone the same fee. If you can’t negotiate this document fee and can’t find another nearby dealer that has the same car with a lower document fee, you could try to negotiate a lower sale price or ask for something extra, like free VIN etching or accessories.

Dealer fees you may be able to negotiate

When you’ve chosen a car and finished dealing with the salesperson, you’ll often be taken into the finance and insurance (or F&I) office to finalize the paperwork.

The F&I manager is there to help you find a loan (if you haven’t already secured financing), finish the paperwork and continue the sales process. If the manager is selling add-on features, you can negotiate the cost, knowing that you can always say no to everything and still leave with your new car.

Advertising fees

The dealership may try to charge an advertising fee to cover its cost of advertising. There’s a reasonable argument that the dealership should include that cost in the price of the car — as opposed to charging it as an extra fee — so try to avoid this one altogether if you can. 

Dealer preparation fee

Similarly, you could argue that you shouldn’t have to pay a fee to have the car washed and prepared for you if it’s a brand-new car.

Additional destination or transportation fees

If you were looking for a specific model, color or features in a car, you might have to pay to have the car shipped to your local dealership. Or, you could try to negotiate and have the dealer cover the cost.

But if the vehicle is already sitting in the lot, you should negotiate (or try to completely wipe out) any transportation fees. Remember, you’re likely already paying a destination fee.

Extended warranties and maintenance plans

You may be offered an extended warranty or maintenance plan from the dealership. If you decide you want one of these optional services, you may be able to negotiate the price and features.

VIN etching

Getting your vehicle identification number, or VIN, etched on your windshield could help deter car thieves who could otherwise remove the VIN from your car before selling it. But if you’re interested in etching, you may be able to save money by purchasing etching from someone other than the dealer. You can even find DIY kits online for less than $20.

Also, you may be able to save money by purchasing tinting supplies, anti-theft systems, fabric protection, pinstriping and rustproofing kits and other protective measures from a body shop rather than the dealer. 

Credit insurance

Credit insurance isn’t negotiable, but it is optional. This insurance can help cover the remainder of your car loan after an accident. Depending on the insurance policy, the coverage might kick in if you’re disabled, lose your job or die.

Your loan shouldn’t be contingent on buying this add-on insurance, and other types of insurance — such as life or disability insurance — might offer similar benefits but cover more than just your auto loan bill.

Gap insurance

You may be required to purchase guaranteed asset protection, or gap, insurance if you lease a vehicle. Some lenders might also require it, but gap insurance is generally optional if you’re buying a car.

Gap insurance covers the difference between your loan and the value of your vehicle if it’s totaled or stolen. For example, when you buy a brand new car, its value will begin to depreciate once you drive it off the lot. If the car is totaled the next day, your insurance might only cover the current value of the vehicle, but you could still be on the hook for the remainder of the loan that’s not covered (i.e., the “gap”).

Bottom line

Learning about the different fees and taxes associated with buying a car is an important part of the process. Take these steps as you begin your car-buying experience.

• Consider the many tips for negotiating and saving money, whether you’re buying a used or new vehicle.
• One of the best ways to make sure you don’t go over budget is to have a firm “out-the-door” price that includes the taxes, fees and any extra costs.