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Updated on Thursday, December 12, 2019
Don’t pat yourself on the back too early if you’ve just negotiated a great price on a new car. No, you’re not done yet — not when auto dealers can add thousands of dollars in the form of fees and products to the price of that new car, truck or SUV.
After all, there’s a reason why the term “sticker shock” comes from the auto dealership world. The good news? You don’t have to take onerous dealer fees lying down.
Sure, there are some new vehicle fees you’ll have to pay. There’s no getting around destination charges and fees that may be required by your state or county, such as title and registration costs. There are, however, good reasons to steer clear of — or negotiate — dealer add-ons such as extended warranties and GAP insurance. This story will help you understand the differences between fees you’ll have to pay, what’s negotiable, and fees you should avoid at all costs.
The auto dealer fees you must pay
You’ll see these fees on your final auto purchase bill and there’s no way around it – you have to pay them:
New vehicles don’t drive themselves to dealer lots (although that day may be coming).
For now, the auto manufacturer delivers the vehicle to the dealership and there’s a fee to be paid for that — one that you, the buyer, have to pay. Expect to pay hundreds, or as much as $1,000-plus, for the mandatory destination fee.
You’ll see the destination fee listed on the window sticker and there’s no point in negotiating it with the dealer, though it should be noted that some manufacturer destination fees are higher than others. You should read the sticker carefully to make sure the dealer is keeping mandatory destination fees separate from negotiable “delivery” fees. These so-called secondary destination fees, such as delivery inspection or dealer preparation fees, are negotiable. We’ll discuss them in more detail later.
Title, tag and registration fees
These are also mandatory, this time by your state or county. These fees funnel through the dealer, typically to your state’s department of motor vehicles, stamping you as the owner of your new vehicle and pays for your temporary tags that get you roadworthy.
Expect to pay as much as $250 to register and title your car, dependent on the state where you reside.
Another “must pay” fee, the documentation fee is the fee the dealer charges for handling all the red tape and generating the administrative documents needed to process your new car acquisition.
You’ll see this fee in advance on your new vehicle contract and, depending on your home state, the fee can cost between $100 and $500. Some states cap the fee. You have to pay this fee, but there’s no rule that says you can’t ask the dealer to lower the price of the vehicle by the exact amount of the documentation fee. Learn more about how to negotiate car price.
In most states, you’ll need to pay a sales tax on your new car, truck or SUV, but the amount charged not only depends on the state where you reside, it also depends on whether your state charges for the full price of the vehicle, or the total price minus the value of any trade-in vehicle that was included in the deal.
If you purchase your vehicle out of state, you’ll pay the sales tax when you receive the vehicle and you register the vehicle in your state of primary residence.
Your sales tax depends on the tax charged by your state, but sales tax fees can generally range from 3% to 9% across the U.S., including county and local sales taxes. Many dealerships will roll sales tax into the title and registration fees we discussed earlier into one TT&L (tax, title and license) fee. Some dealers say to expect to pay between 8% and 10% of the sales price in taxes and fees. This rule of thumb applies to new and used cars.
Vehicle inspection fee
A new vehicle must pass certain inspections before it can be sold, based on the standards and criteria mandated by the state where the vehicle owner resides.
The fee, which is paid for by the dealer and passed on to the customer, doesn’t amount to much (about $7 to $30 per vehicle, dependent on your state.) The low fee isn’t really worth the trouble of negotiating it off of the total car price, but it is a fee that has to be paid.
These auto dealer fees should be avoided, contested or closely considered
You may see these auto dealer fees on your new vehicle contract but in most cases, you can avoid them, or at least contest them.
You might think that it’s up to the dealership to pay for its own advertising and promotional costs, but you’d be wrong. The fact is, an advertising fee can appear on your new car invoice listed as a component of the vehicle’s manufacturer’s resale price or it can appear on your contract as a separate cost.
You can contest this fee and negotiate directly with the dealer — it’s not mandatory. If you don’t, you may pay several hundred dollars for the fee.
Technically a product, an extended warranty covers any significant repairs needed on the vehicle after the original manufacturer’s warranty expires.
You don’t have to pay for an extended warranty, so feel free to avoid it altogether.
If you change your mind, and decide that an extended warranty is worth the cost, you can also go back to the dealer and buy the warranty later, but before the original warranty expires. The cost of an extended warranty isn’t cheap — anywhere from about $1,000 to several thousand dollars — but compare that with the cost of paying $4,500 for a new engine after the original warranty expires.
Dealer preparation fee
Often, auto dealers will charge a dealer preparation fee for cleaning up the car for you before you drive it off the lot. There is absolutely no need to pay this fee, which can range from $100 to $400.
Think of the fee this way — why should you pay extra for a fee to clean up a new vehicle that you just paid $35,000 to purchase? Shouldn’t the car appear clean, shiny and free of any problems at closing? Take the mindset that, yes, it should, and fight the fee accordingly.
Rustproofing and undercoating fee
Dealers will also try to stick you with so-called “treatment” fees that protect against Mother Nature and rocky roadways. The fee, which can cost around $800 to the dealer, aren’t really necessary in this day and age, as manufacturing technology has provided better protection for undercarriages and vehicle exteriors.
The dealer may also charge for other “appearance” packages including window tinting and tire and wheel warranties. These are also optional, so consider each one carefully, including cost and how important they are to you.
GAP insurance costs
In some cases, buying GAP insurance if you’re buying a new vehicle and want to add extra protection may be a good idea — it can cover the “gap” between an auto insurance claim payment and the amount of money owed on a heavily damaged or destroyed vehicle.
The thing is, you don’t have to buy it from the lender or dealer. In doing so, costs can be as high as $700 or more and is rolled in to your car loan, which also includes interest paid on the total loan, boosting the GAP insurance price up higher. Better to shop around among insurance companies who’ll likely offer you a better deal and cut out the dealer altogether from GAP insurance.
VIN etching fee
Your dealer may also try to sell you a theft-protection tool called vehicle identification etching, or “VIN” fee, which covers the cost of etching your VIN on the vehicle’s front window to thwart auto thieves.
While it’s always a good idea to protect your vehicle anyway you can, there’s no reason to have the dealer do the etching for $200 or more, when it only costs them $25 to do the job. A mechanic can do the job for much less. Some counties will offer the service free, so check with your local government office.
Stand your ground
When you’re in the throes of love for that brand-new vehicle you just purchased, it’s easy to gloss over fees and extra costs that dealers love to charge to pad their bottom line.
Don’t fall for many of those fees. While some extra costs are mandatory, there are plenty of new car dealer fees than can and should be avoided.
Stand your ground and use the tips above to make sure you’re not paying more than you should for your new car. Dealers also love to pad your APR, so in addition to the fees we described here, don’t make these common mistakes when shopping for an auto loan. Before heading to the lot, research the best auto loan rates.
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