Whether you are buying or leasing a new car, it is important to keep a watchful eye on the numbers as you negotiate the deal. Have a calculator with you and be ready to calculate a total at the end. What is shown on the window sticker is not the final price you pay as a purchaser.
Make sure that the finished contract has the correct purchase price that you agreed on, or in the case of leasing, the capitalized cost. Further ascertain that the trade-in amount, rebate, and/or a cash down payment has been subtracted from the total price of the vehicle. If you are using dealer financing for your auto loan, make sure to check for the correct interest rate.
While you're looking over these numbers, you'll likely run across a range of extra charges and car-buying fees. It's a good idea to check whether these charges are legitimate as you'll end up paying interest on them unless you pay them upfront.
Read on to see a list of common dealer fees and charges that you might encounter when purchasing a new vehicle:
This is a delivery fee that is passed along to you from the car dealership. The destination fee is presented by the automaker and should be the same across all models from a specific brand. Destination fees are basically the cost to transfer the vehicle from the factory to the specific car dealer which you have chosen, and it is a legitimate charge.
However, sometimes dealerships will try to add an extra charge with names like pre-delivery inspection, dealer preparation fee, preparation fee, or dealer prep among others. There is a multitude of ways dealers phrase these extra fees. These are not legitimate fees and you should contest having to pay them.
If the vehicle you are purchasing is sitting in the lot at the dealership, attempt to get the destination charge erased completely as the vehicle's destination and delivery have already been paid. If you are seeking a specific color, trim level, or a limited production model, expect to pay additional destination charges, not less.
Registration and Title Fees
Generally, dealers have an arrangement with the Department of Motor Vehicles (DMV) to provide title and registration for their car sales. They may give you temporary plates and you will pick up your permanent license plates later at the same dealership.
Registration fees and title fees are obviously legitimate fees when buying a car that you will have to pay upon buying or leasing a new or used car.
None of these above-mentioned fees go to the dealership either, but instead directly to the state. In this case, the dealer is making it more convenient for you as you will not have to visit the DMV yourself.
Each state handles the registration and title process differently, ensure you understand your individual state rules and regulations for registration and title fees before agreeing to a sales contract.
Documentation or Conveyance Fee
Documentation or conveyance fees cover the general cost for the dealership to process official paperwork for the sale, including the title and registration. In some states, the dealer is strongly limited at how much they can charge, but a lot of states do not impose any limit.
Dealers usually charge somewhere between $100 and $500, and the final amount is usually already printed on their sales contracts. It is fairly difficult to get a dealership to waive or reduce the document fee.
However, you can work it into your negotiations by trying to get the sticker price reduced by the same amount, or you can attempt to get a free accessory thrown in, such as a cargo net, branded floor mats, or similar.
Documentation fees are how dealerships pay their back-office workers, but since dealerships make money on each vehicle sold, attempting to negotiate this price can be beneficial and is worth discussing with your salesperson.
State Sales Tax
The sales tax you pay will vary from state to state and some states charge sales tax for the entire amount and others subtract the trade-in from the purchase price and then tax that only. California, for example, taxes 7.5 percent on the entire amount of the price of the car, no matter the vehicle.
In addition, in California, you may be charged up to 2.5 percent taxation for your new car for local county or city tax. In New York, the state charges 4 percent sales tax, with an additional maximum of 4.75 percent for local county or city tax.
If you buy a vehicle outside of your own state, you will pay the sales tax of your home state when you register the car. Many dealerships will handle registrations from nearby states.
For example, if you buy a car in Oregon where there is no sales tax, but register the car in Washington State, where you live, you will be charged the Washington sales tax.
Double check the laws in the state where you live and the state where you are considering purchasing a vehicle, State laws vary considerably on this topic.
Regional and National Ad Fee
This might sound like a dubious charge on the surface, but it is legitimate. Automakers charge branded dealerships advertising fees for national advertising.
At the same time, regional dealer associations also have advertising fees for their local ads running in papers, on the radio, and on TV.
Typically the dealer will pass some of these dealership fees on to you when you buy or lease. The charge should be fully revealed upfront before you start negotiations.
Ensure to ask your salesperson if the total price is inclusive of all fees. If the dealer tries to categorize this fee as add-ons at the end with no warning, then you should challenge it.
Extended Warranty Fee
This is not usually something that is randomly tacked on, but something that you will get the chance to either buy or leave on the table. What it does is add extra coverage for any major repairs needed once the manufacturer warranty ends.
This could also be a requirement added by your lender if you are purchasing a new car through an auto loan. It is a good idea to make sure that the coverage is backed by either the manufacturer or a well-known and established third-party.
You do not have to buy these right away either; you can take some time to compare coverage and contracts.
Extended warranties can be purchased through third-party companies, the vehicle manufacturer, or the dealer that you purchase your vehicle through. Keep in mind if you purchase an extended warranty through the dealer, that you will end up paying interest on the total cost of the extended warranty added to your auto loan.
Additional Dealer Markup (ADM) Fee
This is actually a pure profit fee for the dealer, and it might seem rather brazen for them to tack it on, however, if your vehicle is a hot-selling model, you might not have any leverage to get it removed.
How do you recognize this fee? Any fees that are not listed on the original manufacturer invoice price are generally tacked-on dealer fees.
These fees can consist of window tinting, freight, dealer prep, or simply marked ADM without explanation. Ensure if you see any of these ADM charges on your vehicle of interest that you inquire with your salesperson on their meaning and attempt to negotiate their removal.
Dealer Prep Fee
This is not a paperwork prep fee, so do not let this slide if you see it. This is a fee to clean up the car and remove any protective coverings or coatings that were applied during shipping. However, the manufacturer has already paid the dealer to do this, so there is no reason for you to pay them again.
As the purchaser, it is up to you to ensure the dealership is not charging you for work they have already been paid for. Charges that make more money from your purchase and lock you into paying interest on work already completed.
Disability and/or Credit Life Insurance
These are specific insurance fees to cover the vehicle payments if you die before the payments are fully made or if you become disabled and are unable to work. However, these are not things that you should purchase at a dealership as they are almost always cheaper elsewhere.
This is important security to have and can be found through a third-party insurance company. Check with your current insurance agent for recommendations for credit life insurance.
Guaranteed Asset Protection (GAP) Insurance
This is insurance that may be required of new car buyers who are financing their purchase through a lender. GAP insurance covers the difference between your loan and the value of your vehicle if it is totaled or stolen. GAP insurance can be purchased in three ways.
The first is through your car insurance company and paid on a monthly basis along with your regular insurance payment. Second, being purchased through a third party for a one-time fee.
The third, and final, way to acquire GAP insurance is through the dealership you purchase the vehicle from. This method of securing GAP coverage rolls the insurance payments into your loan payments.
If you purchase GAP insurance through the dealership or lender, you are paying interest on the cost of your GAP insurance for the duration of your loan.
This charge covers the application of expensive, paint-like tape applied to the car to give it a sporty look. If you really want this added to your vehicle, you will find better pricing at a detailing shop rather than the dealer.
Detailing shops specialize in pinstriping and offer it as a primary service; as opposed to a dealership that offers it as a side option to generate more revenue. Detailing shops will also have many more options than dealerships will for pinstriping colors and designs.
Rustproofing or Undercoating
Modern vehicles are already made to withstand harsh weather and treated roads, so additional coverage is typically not needed. The dealer may tack these additional fees on in an attempt to get you to pay for something that is, in effect, already there.
Ensure you pay attention to the fine print on your sales contract to catch the redundant charges dealerships may attempt to charge.
Some states actually require that dealers offer this service to you, but you do not have to buy it. It's essentially a security measure where the vehicle identification number (VIN) is etched into the glass, thus making it harder to remove if the car is stolen.
VIN etching can help lower your car insurance depending on your insurance provider and state. It is a smart way to better protect your investment and can easily be done by yourself or through a third party at a lower price.
Fabric Protection and Paint Sealant
These are simply the equivalent of Scotchgard and wax, respectively, that the car dealer will charge you a premium for. Fabric protection and paint sealant are additional options that dealership will attempt to convenience you are wise purchases.
As a new car buyer, you have to be able to determine when an option offered is worth the price the dealership is asking, or if it is something you can forego at the moment. You can do both of these yourself or have them done cheaper at a detailing shop that specializes in fabric protection and paint sealing.
Dealers may also offer to install these for you but again will charge you a premium for it. Either do not bother with it or have one installed at a car audio and accessory shop that will charge you much less. Car audio and accessory shops specialize in installing security systems and often offer warranties on the work they provide.
One final thing to remember is that any fees not listed on the manufacturer line item invoice are fees you should potentially question. Challenging fees and charges not listed on the original manufacturer invoice can save you hundreds, if not thousands of dollars.