You choose a car. You negotiate a price. You get set up with financing. You start to configure your monthly payments. And then it’s time to look at the paperwork and finalize the deal.
All of a sudden that price might look a lot higher than the one you started with.
Thanks to sales tax, registration, and a slew of unexpected fees, the already expensive process of buying a car at a dealership can hit epic proportions right before the close. That’s why it’s important to be ready for anything — so you can negotiate and prepare for the real price you might pay.
In that light, let’s take a look at some of the hidden fees to watch out for when buying a car.
Hidden Fees to Watch Out for When Buying a Car
The following is a list of some of the many fees that can crop up whether you go to bad credit car dealerships or premium car dealerships alike. You won’t necessarily see all of them, but it’s important to know what you might see. Here goes:
- Additional Dealer Markup
A charge that a dealership might impose on you for purchasing a car or model of a car that’s in high demand.
- Advertising Fee
A charge for advertising to attract customers to the dealership, and that the dealership might then pass on to you.
- Credit Life Insurance
Insurance to cover the payoff of the car if you pass away so the cost won’t be passed on to your family.
- Dealer Preparation Fee
A cost the dealer might try to pass on to you that they paid to clean up the car from the delivery and prepare it for purchase.
- Delivery Fee
An additional fee to the destination charge (see below) that’s basically a repeat of that same charge.
- Destination Charge
Dealerships can charge you for the cost they paid to transport the car from the factory to the dealership.
- Disability Insurance
Insurance to cover your car payments in the case that you should become disabled and unable to work.
- Documentation Fee
The fee you’ll pay the dealership to manage and maintain your paperwork.
- Extended Warranty
A warranty to cover certain repairs after the manufacturer’s warranty expires.
- Fabric Protection
A treatment the dealership might offer to protect your car’s upholstery from stains.
- Insurance Binder
Insurance to cover your car from the time until you take it home from the dealership until you can get your car insurance transferred over from your old car to your new one.
- Paint Sealant
A wax the dealership might offer to apply to the car to keep the paint looking new for longer.
Decorative paint or tape the dealership might offer to apply to your car’s exterior.
Another offer the dealership might make, this one to protect your car from rusting due to the weather and rough roads.
- Sales Tax
Varies by state, this is the tax you’d pay for any qualifying purchase in the state. If you go out of state to buy your car, you might still have to pay sales tax where you live.
- Security/Anti-theft System
A car alarm or other devices to prevent theft on your car.
- Title and Registration
Legal forms that show who owns the car, and that it’s been registered with the state and associated legal fees have been paid in full.
- Vehicle History Report Fee
A report that shows you a car’s ownership history, accident history, and other important details to show the real condition the car you want is in.
- VIN Etching
An offering to etch your vehicle identification number onto your window, which is said to be a theft deterrent.
When you review the fees being presented by a dealership, consider this: US News says that some of these fees could appear on the sticker price and then again on the paperwork separately. In other words, there’s a chance you could pay twice. If you see fees in the sticker price and on the paperwork, make sure they add up to the sticker price and don’t go over it.
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But Do You Have to Pay Them All?
Some of these fees are legal, which means you’ll have to pay them. For example, title and registration are a must, as is sales tax. Luckily, you can look these fees up on your local DMV’s website before you even go to a dealership.
For example, California has a calculator to help you determine your vehicle registration fee and New York has one just like it. DMV.org lists a tax and tags calculator to help as well.
As for the other fees, Consumer Reports says the documentation fee and destination charge are likely unavoidable in addition to the title and registration fees and sales tax. But what are you paying for? The documentation fee is so the dealer will manage and store your paperwork, and the destination fee is the cost the dealer pays to move the car from the manufacturer to their lot.
Fees that might be negotiable, the site lays out, are any delivery fees or secondary destination fees that pop up, dealer preparation fees, credit life insurance, disability insurance, and the fees that modify or claim to further protect your car. That is, things like pinstriping, VIN etching, paint sealant, and so on. At the very least, you might be able to get these services elsewhere for less.
So where does all this happen? In the finance office. An article in US News reminds consumers that the finance manager at a car dealership is another cog in the sales wheel. He or she might try to pressure you into upsells such as extra warranties and insurance products and things like anti-theft systems.
Keep in mind that you aren’t required to buy these add-ons. And, if you really want any of them, shop around for other options and prices. Don’t let your desire to get the deal done unnecessarily cost you money.
And Finally, the Fee We All Forget About
Interest charges. We all know they come with an auto loan, but we rarely think about how much they’ll add up to. After all, the financing takes care of that thought process for you, right?
Not really. When you’re told how much you’ll pay each month, you’ll simply be shown a price, an interest rate, and the monthly amount you’ll owe and for how long. That doesn’t mean anyone’s illustrating how much more you’ll pay for the car once all is said and done.
Although interest is unavoidable if you’re taking out an auto loan, the effect it has on your finances can vary quite a bit. For example, if a dealer is trying to talk you into a more expensive car than you planned by proving that you can “afford” it, what that really means is the dealer can get the number back into your monthly budget by extending the time on your loan. And that means paying more in interest and a higher price for the car overall.
If you want to try to save money on your next car purchase, prepare yourself and do your own math. Calculate the total cost of the fees being presented to you by the dealer. Then find out how much you’ll pay in interest over the life of the loan (here’s a calculator to help). Once you see that number you’ll be better equipped to understand the real price you’re paying for the car — and then you can decide whether or not that’s a deal you really want.
Nervous about committing to a car? You can always try one out through a lease. Click here to learn more about car leasing and if it might be a better option for you, and click here to see if you’ll need good credit to get a lease.