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Car Dealer Fees: What You Can & Can't Avoid
You’re about to get a great deal on a new car. The sales person agreed to your number. Yay! But then you see the final paperwork. And the fees just keep piling up. Do you have to pay the doc fee? For VIN etching? And what’s a destination charge? All of a sudden, it doesn’t feel like you’re getting such a great deal after all. You feel swindled.
Follow along as we explain various car dealer fees and how you can avoid certain ones.
Car Dealer Fees – Explained
|Car Dealer Fee||What It Is||Can You Avoid It?|
|Destination Charge||Cost to transport the car from the manufacturer to the dealership||No|
|Title and Registration Fee||Cost to establish you as the vehicle’s owner and the get the vehicle properly registered in your state||No|
|Documentation/Doc Fee||Cost to process your documents and paperwork at the dealership||No|
|State Sales Tax||Charge levied by state government||No|
|Advertising Fee||Fee passed through from the manufacturer to help pay for promoting the car||Maybe|
|VIN Etching Fee||Fee to have the VIN etched into the car’s windows||Yes|
|Dealer Financing Markup||An amount of money the car dealer adds on to dealership financing, either through the interest rate or on top of other ancillary products||Yes|
What’s a Destination Charge?
A destination charge is a fee that’s set by the automaker. It covers the cost to transport the vehicle from the factory to the dealership, and it’ll be listed on the car’s window sticker.
You generally have to pay the destination charge. BUT (and this is a big BUT), Consumer Reports notes that some dealerships get sneaky and tack on things that sound like destination charges but really aren’t.
“If you see additional ‘pre-delivery inspection,’ ‘delivery,’ ‘destination,’ or ‘dealer prep’ charges, you should refuse to pay them,” says Consumer Reports.
What’s a Title and Registration Fee?
The title and registration fee pay for your vehicle to be properly titled and registered in the state. Most dealerships have agreements with the state’s Department of Motor Vehicles so you can take care of the title and registration at the dealership, without have to visit the DMV. Some dealerships will issue you temporary tags. Others will provide you with permanent license plates. The title and registration fee is set by the state and is not negotiable.
What’s a Doc Fee for Cars?
A doc fee, or documentation fee, is a fee that’s charged to cover the cost of processing a vehicle’s paperwork. It helps pay for the dealership staff you probably don’t see, like the people who handle money and set up the title and registration with the DMV.
Most states don’t put a cap on doc fees, but some states do. Find your state on this list of average dealer documentation fees by state. Dealerships in states that don’t regulate doc fees have been known to charge doc fees of several hundred dollars.
So, do you have to pay doc fees? According to Auto Trader, the answer is yes and no. What you want to focus on is negotiating the bottom-line number.
“If you’re prepared to pay a certain amount of money with tax for a car, you should ask the dealer to deal in his bottom-line or out-the-door price — a price that includes the doc fee… That way, you’re not haggling over the exact dollar amount of fees and taxes… Instead, you’re focused on the price you pay overall, and if the dealer wants to include a doc fee in that price, then so be it.”
What’s a State Sales Tax?
The word “tax” should tip you off here. Can you think back to a time when you’ve been able to avoid paying taxes of any kind? (Except tax-free weekend if your state participates in that program!) Sales tax is not negotiable.
You’ll need to pay sales tax when buying a vehicle. You may have to pay tax on the full amount, or the purchase price minus a trade-in. If you’re buying a car out of state, you’ll pay sales tax when you register the vehicle in your home state. Sales tax varies by state. Check out this list to view car taxes by state.
What’s an Advertising Fee?
Auto manufacturers will add a charge to each car that’s delivered to the dealership to help pay for a brand’s national advertising — think newspaper, radio, magazine, and TV ads.
According to U.S. News and World Report, “Some dealers will try to get customers to pay twice: first, as part of the invoice, and then again as a separate fee when the purchase is finalized.” Watch out for a duplicate advertising fee — it’s one car dealer fee you can avoid.
What’s a VIN Etching Fee?
This car dealer fee is exactly what it sounds like. You can pay to have the vehicle identification number etched into the car’s windows. It’s an anti-theft measure and while highly recommended by insurance companies and the police, VIN etching is something you can do at home or through your local police department at a much lower price. DIY kits on Amazon start at about $17. You can expect to pay $200 or more at the dealership. VIN etching is optional and you do not need to pay this fee when buying a car.
Beware of the Dealer Financing Markup (the Fee You Don’t See)
The car dealer fees we’ve reviewed thus far are ones you can typically see clearly outlined in your final paperwork. There’s another fee, however, that could remain “hidden” — the dealer financing markup.
Data released for “2018 show that consumers paid an average of $1,791 in undisclosed fees and markups, a 5% increase from 2017 and a 71% increase since 2010,” reports Outside Financial via PR Newswire.
Why is this? Car dealer fees have become increasingly transparent, with outlets like Consumer Reports and even myAutoloan raising awareness about fees you can avoid and those you can’t. In response, “dealers have increasingly relied on loan markups to grow profitability.
Dealer markups on auto loans are one major car dealer fee you can avoid.
Jon Friedland, CEO of Outside Financial, estimates that in 2018, “By shopping for car loan packages before they go to the dealership to buy their cars, consumers could have saved $1,000 in hidden fees and markups on each of these loans.”
Reading about car dealer fees may make you feel like you’re at the mercy of the dealership — but you’re not. When you’re a cash buyer, you can be in control from the moment you set foot on the lot. Take the advice of Outside Financial and get to know your financing options ahead of time. Don’t fall victim to hidden markups on dealer financing. Start the process with myAutoloan. Submit one application and see up to four financing offers in minutes.