Just because you negotiated a great deal on your next car doesn’t mean you have a handle on the total cost. Some people go to the dealer and are shocked at all of the extra charges that are tacked on to the price, but there are several ways to tell which ones are legit and which are bogus.
Tom McParland from Auto Match Consulting breaks down all the fees and what they mean.
I thought it was common knowledge that when you buy a car you have to pay both the purchase price and extra fees such as sales tax, registration, and tags. However, I’ve gotten a surprising amount of emails from folks who negotiated a price then arrived at the dealership and saw the final tally only to assume the dealer was “ripping them off” with these additional charges. They were also surprised to find out that the dealer refused to remove these fees or include them in the original price.
So, let’s examine some of the most common fees you may encounter.
This one is going to have the largest impact on your total price. The important thing to remember is that the sales tax is based on where the vehicle will be registered, not where the car is purchased.
For example, I live in New Jersey with a 7-percent sales tax, but I’m not far from Delaware, which does not charge sales tax on vehicle purchase—rather, the state charges a 3.75 percent “document fee.”
Some people are under the impression that if they want to buy a $25,000 car, instead of paying $1750 to evil New Jersey, they can just drive over the state line and pay $937 to Delaware. Nope. Since the buyer is a Jersey resident, his or her home state still is going to want a cut of that sale. The Delaware dealer will charge them the full 7 percent.
Sometimes even within the same state, the sales tax will vary. For some people who live in large cities like Philadelphia or New York, tax will be higher than it is for buyers in the suburbs. It sucks, but that’s the price you pay for being one of them fancy big-city types.
Also, remember that the amount of tax you pay could be impacted by your trade, so look at the calculations carefully.
DMV or Documentation Fees
Your new or pre-owned car must be registered with the Department of Motor Vehicles. It also needs licence plates, because law enforcement isn’t too happy when cars are cruising around with no plates.
The dealers are going to charge you a little bit more to push the paper than it would cost you to do it yourself. On average, this will add anywhere from $300-$600 to the total price. They all do it, and it’s just one of those things you have to suck up.
If you think you got a great deal on the car, do yourself a favor—don’t nickel and dime the dealer over few hundred bucks because they are going through the proper channels to make sure your car is legal. Keep in mind the dealership pays people to deal process this paperwork; these are nice people with bills to pay too.
Depending on where you buy a car, you may also encounter small stuff like “tire tax” or a “loan processing fee.” These are typically minor and only cost a few bucks here and there. Don’t stress about them.
The first one you should look out for is a “dealer fee” in addition to the DMV paperwork fees. Florida dealers are notorious for this. Practically every dealer in the Sunshine state adds on an additional $600-$700 on top of all the other fees. They will tell you it’s “mandatory,” and that is most likely a load of crap. However, some stores will give you a big enough discount off the price of the car to offset it.
If the dealership doesn’t remove the fee or reduce the price of the car, the other alternative is to buy somewhere else that doesn’t charge the fee. This might be a logistical challenge in a large state like Florida, which is probably why so many dealers down there get away with it. But I’ve also found the extra “dealer fee” to be pretty common in Connecticut as well. I recently had a customer looking for a Hyundai in that state and a local dealer that offered an aggressive discount insisted on a $599 dealer fee. I got a dealer in New York to match the price and didn’t charge the extra $599; the buyer took a short drive and saved a few hundred bucks.
I’ve also seen a “transport fee” in some areas, which is totally ridiculous when the car is literally sitting on their lot. It’s bad enough the manufacturers tack on a “destination charge”onto the MSRP to move the car from the factory to the dealership. Again, this fee should either be waived or neutralized by some additional discount.
The only time the transport fee may be a legitimate expense is if you want a very specific vehicle that is hard to find and the dealer has to bring it in from far away. High-end and specialty cars have to be put on a truck to be moved long distances, the trucking company is going to charge the dealer and they will pass that cost on to you.
Focus On Total Cost
It’s easy to get hung up on every line item and be suspicious of every charge. It’s your money and you should question charges you aren’t sure about, but when comparing the best deal focus more on the total cost rather than the details.
At the end of the day, you just want to spend the least amount possible. This is why you should request an itemized out-the-door from every dealer you contact. It’s possible that a dealer could be charging you silly extras but still offer the best price.
I had a customer in Jersey who wanted a fully loaded, black on black, Mustang GT convertible with a manual. That’s not an easy car to find, and the local stores weren’t offering much in terms of discounts. I found a store in Baltimore with a whopping $7000 off the sticker price. This place adds that stupid “transport fee” of $699, but the net discount of $6300 was still thousands more than anyone else. It wasn’t worth fighting them over the $699 when the total price made up for it.
When shopping for quotes, sale price is important, but have the dealer send you a total with all applicable taxes and fees. If you are buying out of state, make sure you have them calculate your tax and DMV accurately based on your location. Then you can compare which deal is the best one.