Your new car is gassed, washed and waiting outside as you review the contract. One small problem: The dealership slipped in some extra fees and you don’t know whether to challenge them or not.
During Philip Reed’s 16 years as a professional car buyer, he tried to separate the bogus fees from the legit ones. Here are his finding on what you have to pay, what a dealership might charge to increase its profit and how to negotiate fees to maximize your savings.
Fees you have to pay
Let’s start with the legitimate fees. In most states, dealers charge three main fees when you buy a car:
|Sales tax||The sales tax is based on where you register the car. Sorry, there’s no slipping across the border to buy a car in a neighboring state to save money on tax.|
|Registration costs||The dealer includes the registration costs set by the state in the sales contract. This saves you a trip to the Department of Motor Vehicles.|
|Documentation fees (aka "doc fees")||Dealers charge you a fee for preparing the various documents to sell you a car. Yes, you read that right. They’re selling you a car and you have to pay them to do the paperwork. Even though this is a legit fee, in some states the amount can vary wildly from one dealership to the next.|
Can you negotiate doc fees?
The handling of doc fees depends on what state you live in. Some states cap fees, meaning the dealership can charge up to a maximum amount for this service. For example, in California, the doc fee is capped at $80.
But in many states, the doc fee is unregulated, meaning a dealership can theoretically charge whatever it thinks you’ll pay. This often comes as a rude surprise when you review the sales contract.
Consult dealership insiders to obtain the average amount charged for doc fees in each state. It’s alarming. In Florida, for example, the typical fee was $799. In multiple other states, the doc fee was $500 or more.
It’s difficult to negotiate doc fees. If you know about them in advance, you can factor this cost into your "out-the-door price" to reduce this fee’s impact. More on this later.
Fees you can challenge
A car sales contract has plenty of blank boxes where a dealership can insert fees and give them an official name or a mysterious abbreviation.
You might be tempted just to accept these without question, but here are some common fees to consider challenging if they suddenly appear when you’re closing the deal:
|Dealer prep||In some cases, the dealer will insert a fee of around $200 it claims is to offset the cost of getting the car ready for sale. However, you’re likely already paying about $800 or more as a “destination charge,” which covers these dealer expenses. So, this fee is clearly redundant.|
|Advertising fees||Some dealers try to charge you for a portion of the cost of their advertising. The ad fees range from several hundred dollars to nearly a thousand for a luxury vehicle.|
|Dealer add-ons||This is equipment the dealer added and is now charging you for such as wheel locks, mudflaps or window tinting.|
|Paint & fabric protection||These cost the dealer very little, and then charges you a lot for it.|
|Anti-theft measures||This can be supplemental alarm systems, vehicle tracking units or even “VIN etching” where the vehicle identification number is etched into the major car parts, supposedly to deter thieves.|
How to deal with fees
To avoid drama in the finance office:
|Find your local fees||Here’s a chart of car buying fees to help you estimate what you should pay. It also shows if the doc fee is capped by the state or is unlimited.|
|Work backwards||Ask about dealership fees early in the car buying process. When you do this, the salesperson will sense you’re an informed buyer who’s alert to hidden charges.|
|Shop around||If you’re in a state with high documentation fees, try other dealerships or even those in a neighboring city for a better price.|
|Beware the supplemental||
At some dealerships, markups and dealer add-ons are posted on a second sticker next to the factory window sticker. Either avoid this dealership, ask to have the equipment removed or tell them you won’t be paying for these items.
But here’s the best way to avoid these kinds of discussions altogether: Request an “out-the-door price” with a breakdown of the fees.
By setting the terms as out-the-door, you spell out your expectations that everything will be included and broken down in any deal you’re a party to.
Do this before you get to the finance office.
Do this before you agree to a deal.
Do this before you even make an offer.
Car buying is complicated enough, and the price at which you’re willing to buy is the whole point – for both you and the dealership.