10 Fees to Watch Out for When Buying a Car

By: Talon Homer  | 
Car dealer handing over the car keys to the customer after purchase.
Buying a car comes with some unwanted costs, which can be avoided by knowing what to look for. thianchai sitthikongsak / Getty Images

Vehicle transportation is often the biggest expense in our budgets, apart from housing. With the cost of new cars continuing to trend upwards, most people are looking for a good deal. However, dealerships are out to make their margins, and these often come in the form of extra fees and charges tacked onto the sale price. Some dealers may even go out of their way to hide fees, handing you a shockingly large bill.

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How Much Are Dealer Fees?

Car dealer fees generally cost between 8 and 10 percent of a car's price. But they can vary depending on the type of car you're buying and how skillful the dealer is at extracting money from you. Some dealer fees (like sales tax) are generally mandated by state law. Others (like the dealer documentation fee) can be negotiated. Whether you buy a new or used car, car dealer fees can be very high, so let's see which ones you may be able to avoid so you can save money.

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1. Destination Fee

A freight charge , commonly referred to as a "destination fee" is the cost of shipping a vehicle from the manufacturer to the dealership. Dealers will typically pass this fee onto the customer but don't often advertise that fact in the sticker price. You'll likely find the MSRP listed on the car in big bold letters, with the destination fee much further down in fine print.

Nowadays, destination fees can typically add $900 to $1,500 to the list price, depending on the weight of the vehicle and distance shipped. This number is almost double what it was a decade ago, so it can be a very common pain point in vehicle shopping. When looking at any new car, be prepared to pay an extra $1,000 or more in destination fees. Dealers aren't likely to waive this cost unless they're trying to move some old stock off the lot. However, if they try to charge you an additional delivery fee on top of a destination fee, you should be suspicious.

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2. Dealer Preparation Fee

Some car dealers will tack on what's called a "prep fee." It involves the cost of preparing the vehicle for sale, including things like removing plastic wrapping, giving the paint a wash, checking the fuses and filling up the car with fuel. Prep can usually be carried out in under an hour.

This could run maybe $100 of labor and material on the dealer's part, but they may turn around and try to charge you a few hundred dollars for the service. Some dealers have even changed from charging a flat fee for dealer prep to making it a percentage of the factory invoice price.

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This is one fee that you should definitely try to talk down if you spot it on an invoice. Preparation falls under the dealer's normal operating costs and they shouldn't be using that as an opportunity to wring extra money out of you.

3. Vehicle Registration Fee

The administration, registration or doc fee is what the dealer charges to register the car at the state department of motor vehicles (DMV) on your behalf. This cost can be as low as $80 and is probably worth it at that price. However, some dealers have been known to rack up $600 or more in documentation fees.

Businesses that do this are trying to nickel-and-dime you. The most you should reasonably be expected to pay is about $200 in documentation fees. To combat this practice, many states have even passed laws that limit the amount of money dealers can charge for DMV paperwork or registration fees. In California, for instance, the maximum allowable charge is $55.

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4. VIN Etching Fee

A growing number of auto insurers encourage car owners to have the vehicle identification number (VIN) etched into the window, the engine and other parts of their vehicle to discourage thieves from stealing the car. With VIN markings all over the car, perpetrators can't easily sell the parts without being traced back to the crime. If you live in an area with frequent car theft, then VIN etching might save you a headache. Otherwise, it isn't really necessary.

There have been a few cases of dealerships charging as much as $400 to have this service conducted during sale, and that's definitely not worth the price. In fact, you can find glass etching kits for as little as $20 and do the engraving yourself.

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5. Advertising Fee

Sometimes, dealers will try to bill for advertising, charging you for their promotional material like print ads, web banners and commercials. Advertising fees may also be marked on your invoice as "marketing" or "solicitation" and you should not pay this under any circumstance. After all, what kind of business makes its customers pay for its commercials?

Often, dealers will advertise a car at a discounted rate, but then tack on up to $1,000 in advertising charges. So, you're not really getting a discount at all. It's some sleight of hand to get your foot through the door. If the price, plus advertising, adds up to more than sticker, push them to drop the fee or simply take your business elsewhere.

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6. Window Tinting Fee and Other Upgrades

Dealers may try to upsell you on options like window tint or nitrogen-filled tires to make an extra profit, or they may just go ahead and charge you for these things without notifying you. For instance, they may charge up to $300 for nitrogen, or more $1,000 for unnecessary rust-proofing. They might also charge $400 for window tinting that you could get at a professional detailer for around $150.

An honest dealer should inform you about any upgrades every step of the way, giving you the ability to accept or decline these options. If you spot any surprise dealer options, try to talk the dealer into dropping the fees or request a vehicle without them installed.

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7. Sales Taxes

This isn't technically a dealer free, but it still adds a considerable number on top of new vehicle sales. Tax rates vary by state but average about 7 percent, calculated after all other charges. If you pay $30,000 total for a vehicle, that means an extra $2,100 cost in sales tax. This is one charge that you cannot negotiate.

However, there may be some tax write-off incentives available for things like electric vehicles. If you trade in an old car, the value of your trade-in can also be deducted from the sales tax, which can relieve a lot of the cost. Not all states charge sales tax on vehicles. Five states that don't require you to pay sales tax include New Hampshire, Delaware, Oregon, Montana and Alaska.

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8. Extended Warranty

Dealer service departments will often offer extended warranties with purchase. This plan would kick in after the manufacturer's standard warranty (typically 50,000 miles or 80,000 kilometers) expires and covers powertrain repairs. However, it likely won't cover things like bodywork, tires and routine maintenance, so beware. This extra also won't be worth anything if you sell or trade in the car before the standard warranty ends.

The dealer may try to charge up to $2,000 for the addition. In reality, you don't need to buy an extended warranty at the time of car purchase. You can likely order one directly from your vehicle manufacturer right before the original warranty is about to expire, and it comes with the benefit of being redeemable at any garage certified by that automaker.

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9. Dealer Markup Fee

For vehicles that are considered rare or in high demand, dealers might tack on an additional price simply because they can. This practice frustrates customers so much that some automakers have even created policies to penalize dealers who do it. For particularly hot sports cars, we've seen markups go as high as a staggering $50,000 over the sticker price.

If you bump into a dealer markup, it's unlikely you'll be able to talk the salesman down. After all, they're setting that price because they believe someone will pay it. If you have no patience, you could eat the markup cost, but the better option is probably to wait until the inventory for that particular vehicle increases, thus stabilizing the market. You can also contact other dealers in the area to try and find a better price for that prized car.

10. Rebates

Manufacturers will sometimes offer factory rebates as an incentive to move old models or slow-selling packages. However, know that this rebate is not a direct discount from the dealer. It comes from the automaker, and it usually goes toward the down payment on a vehicle. This means that you might still be subject to sales tax for the rebated money, but it can be tallied up differently based on your state.

Therefore, a manufacturer's rebate should have no effect on the underlying price of the vehicle. The automaker is essentially passing a stipend to the dealer, and you get some cash knocked off the sticker price in the process. You should be aware of this when negotiating, since the rebate costs no money on the part of the dealership. Models that have rebates available are also probably the ones that salespeople are most eager to move off the lot and make way for new stock.

Originally Published: Jan 13, 2016

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