If you have decided to go car buying and find the vehicle you want, you may have seen something called "doc fees," or documentation fees. Sometimes, dealers charge this fee in addition to the purchase price of the car you are buying. It often adds several hundred dollars on top of the sale price you agreed on with the dealer.
Before completing the car purchase, you need to know what a doc fee is. Is it a scam? Are you required to pay it? Here are some answers.
The Doc Fee: An Overview
The document fee, which is also called the service and handling charge in some states or the document-processing fee in California, has a storied history. It's a fee applied to the final used car and new car prices. Due to its regular use, many believe it to be a legitimate charge.
Previously, the sales staff at dealerships were told to inform their customers that the doc fee merely was used to cover the cost of doing business with the government. In reality, the majority of dealerships today employ several full-time staff members who are there to handle digital filing and administrative paperwork that's related to the sale of vehicles.
Doc Fees Explained
The fee is charged by a dealership to process the paperwork related to a vehicle that has been sold. Primarily, the doc fee is used to cover all the expenses associated with the back-office employees at the dealership mentioned above. These are the individuals who handle the registration, title, and deal with the state's motor vehicle registrar.
The main issue most people have with the doc fee is that they believe the original purchase price should cover all of these costs. If the dealership is making a profit on each of the vehicles sold, shouldn't part of that profit be used for paying all the employees? To many buyers, the concept of an additional charge such as this seems unreasonable and fraudulent.
Is it Necessary to Pay the Doc Fee?
You may wonder – do you really have to pay this fee? The answer isn't black and white. Some shoppers become so obsessed with the doc fee, they forget about the most important aspect of the vehicle buying transaction – the bottom line. That is the number that includes several things, all the associated fees and the sales tax. And it is the number you need to focus on negotiating.
If you have budgeted a specific amount of money, including tax, for the vehicle you want to purchase, you need to ask the dealer what the "out-the-door" or "bottom-line" price of the vehicle is. This price will include that doc fee if the dealer even charges one.
That will help you avoid having to haggle over the specific dollar amount of the fees and the taxes, which can be a bit disheartening. With this, you focus on the overall price you pay. If the dealer plans to include a doc fee with that price, let it be.
Does this Doc Fee Apply to Both Used and New Vehicles?
The answer to this question is, "yes." Dealers typically apply this to all types of vehicle sales. Also, the state laws that regulate doc fees (where they are enforced) apply to both the used and new car transactions.
Is There a Tax on the Doc Fee?
The answer to this question is also yes. There was a federal court ruling that determined dealerships must pay taxes on any revenue received. That means that doc fees are taxable.
An Overview of Doc Fees by State
A doc fee can range from nothing to almost $1,000. The difference lies in which state you purchase your vehicle. There are some states, like California, that put a cap on what a dealer can charge for this fee, but the majority of states still have no limit.
The fee is non-negotiable because the dealership is required – by law – to charge the same amount to every customer. However, you can request that the dealer reduces the vehicle's price to compensate for that higher doc fee.
There seems to be a trend that higher doc fees are present in the southeast region of the U.S., with Florida having the highest average doc fee of $607. California has the lowest at an average doc fee of $55, which is also the maximum amount dealers in the state can charge.
States with Caps and Rules on Doc Fees:
- Arizona (restrictions apply, max $129);
- California (cap $55);
- Illinois (cap of $155);
- Kansas (restrictions apply, max $299);
- Louisiana (cap $100);
- Maryland (cap $200);
- Michigan ($194 max doc fee and $21 electronic filing fee);
- Missouri (restrictions apply, max $199);
- New Hampshire (restrictions apply, max $349);
- New York (cap $75);
- Ohio (cap $250); Texas (restrictions apply, max $150);
- Washington (max $150).
Highest Doc Fee States (based on the average fee charged):
- Florida at $607;
- Colorado at $508;
- Georgia at $502;
- North Carolina at $466;
- Alabama at $458.
Lowest Doc Fee States (based on the average fee charged):
- California at $55;
- Oregon at $61;
- New York at $74;
- Minnesota at $75;
- Arizona at $97.
The states that offer a cap usually have dealerships charge the maximum allowed, but this isn't always the case. Once a dealership determines what they will charge based on state regulations, they must charge the same rate to all customers. That's also regardless of how much their vehicle costs or if they opt to buy new or used.
What Options Do You Have if You Believe the Dealership is Charging Too Much for the Doc Fee?
In the states where the fee is regulated, the likelihood you will be overcharged is very low. After all, the penalties that dealerships face if they violate these laws are usually severe.
If you are buying in a state where there are no regulations on the fees, it's a good idea to focus on the final cost of the vehicle and ignore the individual charges altogether. A good strategy is to price shop at two, or more, dealerships for the same make and model of vehicle. By doing this, you can use competitive pressure to help get the best price for the truck, car, or SUV you want to purchase.
Always Be Careful
Regardless of how much you negotiate the price on a new car, it's a good idea to ensure all the fees are made clear before signing anything. Explicitly ask the sales staff if the price they have given you includes all of the applicable fees. That is when they will come clean about any other charges that you may see on your final paperwork. If there's a new fee that is seen, it may be best to walk away and find a different dealership to buy from.
Other Fees You are Likely to See
Now that you understand the doc fee, how it works and what it is, it's a good idea to get to know the other costs you may see on your paperwork. After all, you want to ensure you are only paying for things that are legitimate charges.
Some of the legitimate fees include:
- Tax, Title, and License
Every dealership is going to charge the tax, title, and license fees. These are commonly called the registration fees. All of these go right to the state vehicle agency and they vary based on the state and city where you are buying the vehicle.
The license and title fee are used to secure your title, which is proof of ownership, registering for the license plate, and helping you get your temporary tags. Note that the dealership does not keep any of these fees. Instead, it's required to give them all to the state, but it eliminates the need for you to walk into a DMV office.
- The Destination Fee
The destination charge is the shipping fee that's charged by the car manufacturer to transport the vehicle from where it is made to the dealer's lot. Usually, you will find these fees to be around $700 up to $1,000. This cost is passed from the dealer to the buyer.
You will see the dealer fee listed on the MSRP window sticker. It's also found on the vehicle invoice.
- Regional Ad Fees
Some dealerships also charge regional advertising fees. While this may sound fishy, it's completely legitimate. Some car manufacturers add charges to all vehicles to pay for the local promotions and advertising the use. Usually, these fees will be from $100 to $400. Two examples of these fees include MACO, which is the Market Area Co-op Advertising Fee, and the TDA fee, which is the Toyota Dealer Advertising Fee.
For this fee to be a legitimate one, it has to be found on the vehicle's invoice. If a dealer attempts to add an advertising fee that is not found on the invoice, they are just trying to increase their profits.
- Additional Fees
Some of the other legitimate fees you may see include a Fuel Charge fee or an Admin Fee. These are only legitimate if they are found on the manufacturer invoice.
Fees to Be Wary Of
Unfortunately, some dealers use questionable methods to make more profits. They do this by adding extra fees that aren't legitimate.
One example is the Dealer Prep Fee. Usually, between $100 and $400, the dealer will try to make you pay for them preparing the vehicle to be sold. Another fee to watch for is the ADM Fees – Additional Dealer Markup. These are also fees that are added to make more profit. If you see any charges that aren't on the original manufacturer invoice, they are made-up, and you should never pay them.