Understanding Which Ones to Pay and Which to Avoid
Story by Sharon Naylor
When you're looking at the price of the car you'd like to buy, you're actually looking at a variety of additional fees blended into that price. While most of these fees are required by state law and by the manufacturer, some—like creative dealership fees—can be questioned, challenged and perhaps removed from the total amount you owe on signing. When you learn about the fees often attached to a car’s purchase price, you become a smarter consumer. Learn to ask the right questions and use your depth of knowledge of the car purchasing process for negotiations to go more smoothly, possibly saving you significant money.
Here are some details on the kinds of fees you’ll find associated with your car purchase:
-Documentation fee: Also called a conveyance charge, this fee is levied for the completion of paperwork related to the sale of your car and is considered a standard, acceptable fee category. Consumer Reports’ February 2013 study of car purchase fees says that “a charge of $150-$300 for processing documents that establish your title and registration is reasonable. Question any charges that are higher than $300.” It’s important to know that some states have a limit to what the documentation fees can be and some do not, which means a dealer can charge whatever they want. Visit Edmunds.com to check your state’s rules.
-Title and registration fees: A car dealership can handle the formalities of Department of Motor Vehicles business, including establishing you as the new owner of the vehicle and obtaining temporary license plates. You can expect the car dealer to pass along to you what the state charges—typically between 1 and 3 percent of the vehicle’s cost—plus a documentation fee.
-Sales tax: This fee will be calculated either on the full price of the car, or on the difference between the price of the new car and the trade-in, if applicable. Edmunds.com offers charts to help you configure and understand your state’s tax rates.
-Destination charge: The factory’s destination charge, or delivery charge, is required and nonnegotiable. This is a standard charge that covers the shipment of the vehicle from its origin to the car dealership. But question any secondary “delivery fee” that’s listed on the contract. Other places your car has been may not be your responsibility.
-Guaranteed Auto Protection insurance: For leased vehicles, this is a must, covering the difference between your payments over the life of the lease and the residual value of the vehicle in case it is stolen or totaled in an accident.
The following charges are mentioned by Consumer Reports as nonessentials. Disputing them may provide an opportunity to talk down fee amounts.
-Advertising charge: Becoming more common, advertising charges are listed by some dealers to help pay for their ads and other promotions. If you see this, contest it, but this is a nominal charge that may be a firm rule for your payment.
-Additional dealer markup: Yes, that means they get to mark up a hot-selling vehicle, and you will likely have to pay it by the rules of supply and demand. If the model is in big demand, you may not have a lot of luck negotiating this.
Consumer Reports says that some fees you should avoid paying include:
-Dealer preparation fee: A fee for removing coverings on a new car during shipment and cleaning up the new car for display.
-Pinstriping: A detailing shop can provide this effect for less than a dealership.
-Insurance: For any type of insurance, consult with your regular home and car insurance companies for your coverage, perhaps at discount if you have multiple policies.
-Rustproofing: Today’s vehicles are manufactured to withstand corrosive weather. If you maintain your car’s coat and undercarriage during your ownership, there’s no need to pay this fee.
-Fabric protection: A can of Scotchgard can protect your fabric seats and flooring for less than $10, so skip this pricy dealer fee.
-Paint sealant: A fancy fee for basically the same thing as car wax.
-VIN etching: This anti-theft measure consists of etching the vehicle identification number into the glass. Consumer Reports says, “Some states require that dealers offer it to you, but none require that you buy it.” You can get it done cheaply at your car repair shop, or get a $25 kit and do it yourself. -Security/anti-theft system: This is more of a feature than a fee, but some dealerships may tack on a fee for installation as well.
Ask about every fee you see on paperwork and take your time reading every line carefully. Keep your mind focused and concentrate on all the contract details. Ask about each number you don’t recognize or understand, and don’t be afraid to pry futher if the first explanation wasn’t clear or seemed shady. You’re the consumer and car dealerships are used to informed buyers. So ask for breaks on fees where possible.
Look up current charts, such as those at Edmunds.com, to find out about additional fees for state and local environmental laws. They may be $20 to $40, but all of those little charges add up! Finally, check out the details of warranties to understand what your fees might be down the line.