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Updated on Sunday, January 31, 2021
Even if you’ve negotiated a great price on a new car, don’t pat yourself on the back just yet. It’s not a done deal until you’ve navigated dealer fees — those government charges and add-on products that could tack on thousands to your new sedan, truck or SUV. There’s a good reason it’s called “sticker shock.”
We’ll look at some of the common fees you’ll encounter when buying a new car and help you understand which ones you’ll have to pay, which ones are negotiable and which ones you should avoid.
Dealer fees you must pay
These car dealer fees will show up on your final auto purchase agreement and there’s no way of getting rid of them. Some pay for dealer expenses; others reimburse the manufacturer. Fees for the title and license transfer services go to state and local government agencies. In most cases, you’ll pay these fees at the dealer regardless of where the money ultimately ends up.
On a new vehicle, the destination fee is listed on the window sticker. It’s the manufacturer’s cost of moving the car to the dealer, and it’s nonnegotiable. Destination fees typically range from about $900 to $1,700 depending on the manufacturer and, in some cases, the size of the vehicle. For example, Chevrolet’s pickup trucks have higher delivery fees than its sedans.
Read the sticker carefully to make sure the dealer keeps the destination fee separate from any secondary “delivery” fees. Such delivery inspection or dealer preparation fees are negotiable, and we’ll talk more about them later.
The documentation (“doc”) fee is another nonnegotiable line item. It covers the dealer’s costs for handling the administrative documents and red tape it takes to process your new car acquisition.
You’ll see this dealer processing fee when you sign the new vehicle contract. Some states set a fee cap, but 34 states do not. Doc fees can typically range from the $75 limit in states like New York and Minnesota to as high as Florida’s $799 median. Ohio and Michigan set their caps as a percentage of the sales prices.
Tax, title and registration
These are the fees set by your state and local government, but the dealer should be able to pay them on your behalf. We’ll break them down one by one:
Taxes: When you purchase a car, states charge sales tax, property tax and/or use tax. Some states calculate the amount based on the full price of the car, while others may subtract the value of any vehicle you trade in as part of the deal.
Title and registration fees: The title or ownership document for the car must be transferred into your name to prove that you own the car. The registration also shows proof of ownership, and the dealer will prepare the temporary tags so your new vehicle is ready to hit the road.
Dealer fees to avoid
The dealer may present these fees as part of your new vehicle contract, but you should question each one to see if you can negotiate the final cost — or even avoid it.
The dealer may charge a fee to cover its share of new vehicle promotions, which can vary by market. Sometimes the fees are set by the manufacturer or a regional dealer group, and it’s difficult to avoid those fees because they are baked into the sticker price. However, if a dealership charges an advertising fee on its own, it’s more likely that you can negotiate it.
Dealers may try to add delivery or preparation fees for cleaning up the car before you drive it off the lot. If this seems like something the dealer should cover, especially for a new vehicle, you’d be right. Fees may range from $100 to $400, so it’s worth fighting to reduce or eliminate the fee. Or, you can use that fee as leverage to negotiate savings elsewhere.
Dealer fees to negotiate or shop around
Even though the cost of new cars keeps rising, dealers make a large share of their profit on dealer service fees and add-on products. Keep in mind that these are optional products where dealers often set the cost — you have the opportunity to lower them or refuse them altogether.
An extended warranty, or “vehicle service contract,” covers significant repairs needed on a vehicle after the original manufacturer’s warranty expires. You don’t have to get one, so feel free to decline that offer during your negotiations — or, you could also find one on your own.
What to look for: Extended warranties aren’t cheap and aren’t created equal. Expect to pay $1,200 to $2,500 — or even more — for warranties that may last as little as one year or as long as 10. Paying for an extended warranty makes sense if you plan on keeping the car after the manufacturer’s warranty expires, or if it offers other services like roadside assistance.
Guaranteed asset protection (GAP) insurance protects you if you become upside down in your loan, owing more than the car is worth. This could happen if you don’t make a substantial down payment on a car and depreciation takes a big bite out of its value. In case of an accident, there could be a gap between the amount your auto insurance company will pay and how much you still owe on the loan. GAP coverage pays the difference, so you’re not stuck making payments on a car you don’t drive anymore.
What to look for: Dealers sell GAP insurance, but you may be able to find it on your own from an insurance company, potentially for as little as $5 to $10 per month. If you add it to your existing auto insurance coverage, GAP insurance could cost as little as $20 per year.
VIN etching is designed to thwart auto thieves by etching the car’s vehicle identification number (VIN) into the car’s window glass. A dealer may try to sell you this theft-protection service for $200 or more. A mechanic shop may do the job for much less. In addition, some auto clubs and local law enforcement agencies offer the service for free, so check with your local offices to see what’s available in your area. You could also buy a do-it-yourself kit online.
Dealers often add extras to the car to make it unique among similar ones on the lot. Common upgrades include window tinting, pinstripes, chrome or alloy wheels, wheel locks and interior stain protection and waterproofing coatings. These items may show up on a supplement dealer sticker next to the factory window sticker and prices are often wildly inflated compared to their actual cost.
Often, these items are already on the car, so you can’t decide if you want them or not. You may be able to negotiate away a large portion of the package price if you’re otherwise serious about buying the vehicle.
If you like some of the add-ons, like pinstripes or window tinting, look for a specialty shop that will usually beat the dealer’s prices.
FAQs about dealer fees
Dealer fees are the charges added to a vehicle’s sticker price. Some dealer fees, like tax, tag and title, are required by law and are nonnegotiable. Other dealer fees are add-ons, which can be negotiated or declined altogether.
You’ll pay many of the same mandated fees when buying a used car, but they may be lower if the car is less expensive than a new one. You shouldn’t pay new-car fees, like the destination charge or advertising fees, on a used car.
Car dealer fees vary by state – from $262 in Oregon to more than $6,000 in Georgia for a new car based on maximum car tax rates, average DMV fees and the median document fee.
Dealers charge a documentation (“doc”) fee to cover the cost of preparing documents for the sale and maintaining records. It’s usually not negotiable directly, but the dealer may lower other costs to make up for the doc fee.
Car sales tax varies by state. Generally, though, the more expensive the car, the higher the tax will be. Cities and counties may have additional sales taxes on top of state tax. Many states tax cars on the full value, even if you’re getting a rebate or other incentive that lowers your final price. You may have to pay property taxes in addition to sales or use tax.