Dealer Fees to Watch Out for When Buying a Car
When it’s time to sign the final paperwork for your new car, chances are good that the words in the contract are blurring together and you just want to go home. But taking one last look could save you money.
Some dealer fees are required, but many aren’t. Stripping away the unwanted add-ons could save hundreds, even thousands, off your total cost. We’ll help you differentiate between what’s necessary and what isn’t, and what to expect in your state.
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How much are dealer fees?
You can expect to pay 8% to 10% of the car’s price in fees. There are required fees, including those payable to your local or state government, and then there are add-ons that may or may not make sense, depending on your situation.
Dealer fees you can’t avoid
Some fees are required by law, and dealers must disclose what they’re charging. However, if there’s a $100 fee you don’t like, you could ask the dealer to take $100 off the car’s price. Your contract will still show that $100 fee for legal reasons, but you’ll be saving the money off the total cost.
Documentation fee: $85 to more than $895
The “doc fee” covers the cost of preparing and filing all the paperwork. Some states set limits on the doc fee — California caps it at $85 — but other states have no limit. In Florida, the median doc fee is $895.
Destination charge: $800 to $1,700
If you’re buying a new car, you can expect to pay the destination or freight charge to cover its transportation from the manufacturer to the dealer. Because it is a federally regulated fee, you’ll pay the same cost (by make and model) regardless of whether you buy it 1,000 miles away from the assembly line or pick it up from the factory floor.
Inspection and emission fee: $7-$40
In many states, a vehicle must pass a state safety and emissions inspection before it can be sold. Then, dealerships pass that cost on to you. They’re typically nominal, ranging from $7 to around $40.
Tax, title and license: varies by state
Once a car is yours, it needs to be registered with your local government. Dealerships handle much of the process on your behalf, and rules vary by state. The basic fees are tax, title and license (TT&L) fees, but additional fees may apply depending on your state of residence. California offers a calculator to estimate the cost of registering a vehicle there.
Car dealer fees by state
Here is a state-by-state table showing the estimated amount you can expect to pay in required fees when purchasing a new or used car from a dealership. We used Edmunds data: the maximum car tax rates, the average Department of Motor Vehicle (DMV) fees and the median document fees in every state. Then we did math based on the average amount borrowed for new cars ($39,721) and used cars ($27,291) to estimate what you would pay in fees. If you buy a car that costs more — or less — your fees will go up or down, accordingly.
Note that the data above does not include destination fees for new cars. As we mentioned earlier, this can tack on about $1,000 to the cost of your car.
Dealer fees to avoid (maybe)
Unlike the fees we described above, the following are not required and may be negotiable.
Car prices are at an all-time high. Dealers are charging “market adjustments” — fees over the manufacturer’s suggested retail price (MSRP) — that are not regulated and are completely negotiable.
GAP insurance: $299-$900
Guaranteed asset protection, or GAP, covers the “gap” between what your car is worth and what you owe if your car is totalled. You probably don’t need it if you make a down payment, but if you don’t make one, GAP could be useful. The dealer isn’t your only option for this type of insurance: Many companies, possibly including auto insurance providers, offer GAP. Shop around before taking an offer.
Loan protection insurance: 0.02%-0.05% of the amount financed
If you were suddenly unable to make your car payments because you lost your job or became sick, loan protection insurance would pay off the remainder of your loan balance — even in the event of your death. Like GAP insurance, you could look to your own bank or credit union — don’t feel pressured to buy through the dealer.
Extended warranty: $1,800-$2,500
A vehicle service contract, or extended car warranty, takes over when the manufacturer’s warranty runs out. Dealers sell them but typically aren’t the ones to back them. Make sure the company behind the extended warranty is reputable, and read the fine print to see exactly what type of labor and parts are covered and for how long.
Tire-and-wheel protection: ~$800
A tire-and-wheel warranty pays to patch, fix or replace your vehicle’s tires or wheels if they are damaged from a road hazard such as nails, broken glass, a pothole or tree limbs. Tires are expensive but relatively infrequent purchases. If your biggest fix over several years is a $10 plug for a one-time flat, it may not be worth the price of the policy.
Appearance packages: ~$1,000
Window tints, wheel locks and paint sealant are examples of appearance packages the dealer may try to sell you, all at a hefty markup. You can often forego these types of upgrades, or you could save money by paying a local auto shop to install the products.
Dealers may charge for etching your car’s vehicle identification number (VIN) onto the windows, but this is something you can easily take care of yourself, through your local police department or a car club like AAA. A VIN is like a Social Security number or fingerprint for your car, and etching it on the windshield or other places can make it more difficult for thieves to resell your car or sell off the parts.
Systems like OnStar and LoJack can track a vehicle’s location in case of theft. Dealers may offer these services as an upgrade, while others automatically add them to cars for sale. Consider whether they’re worth the cost before you go car shopping.
Which dealer fees do you really need?
Some fees come down to your personal preferences and appetite for risk. An alternative to buying protection products is to keep a rainy day fund; this way, the money stays in your pocket, not the dealer’s. If you’re unsure about a certain fee, ask for information before you sign. Once you finish the paperwork and drive off, it could be considered a done deal.
The fees you may have to pay to a dealership when you buy a car can add up to 8% to 10% of a car’s price; however, not all of these fees stay in the dealer’s wallet. They include any applicable taxes, registration charges and other fees required by law.
Documentation fees range from $85 to more than $895, depending on the state and the dealership.
Yes and no. Fees charged by your state or local government are mandatory and cannot be disputed. Fees charged by dealers are allowed by law but must be uniform. They cannot charge one fee for one customer and a completely different fee for another. You could ask a dealer to reduce the price of the vehicle by whatever amount the fee costs.
For example, if the dealer document fee is $800, you could ask the dealer to reduce the car price by $800. Of course, there is no guarantee that the dealer will agree to the price reduction.
To determine what you should pay for a new car, look up the car’s value on an industry guide. NADAguides, Kelley Blue Book and Edmunds are all completely free for consumers to use. Dealer prices may be higher or lower, but we recommend not paying more than the guidebook value. Here’s more on how to value a car.
For all car purchases, dealers charge document and TT&L fees, as allowed or as required by the state. You face the same types of car-buying fees whether you buy a new or used car. The exception is that used cars do not have destination fees. The good news is that used-car fees often add up to a lower amount than new-car fees because used cars are generally less expensive.
You can avoid dealer fees by purchasing a vehicle from a private seller. That said, you will still have to pay any inspection, taxes and registration fees that your state charges. Here’s how to buy a car on Craigslist.