Additional Fees When Buying a New Car
There is no question car dealers are experts at "nickel-and-diming" you to death with additional fees and charges when it comes to buying a car. However, depending on the region you live in, there are legitimate state and regional fees required by law. These fees vary from state to state, some can be negotiated and some are your responsibility to pay.
Why these additional charges become such a controversial subject is because most car dealers will not bring them up during the negotiation stage. You end up blind-sided with them towards the end of the car buying process.
This can be very irritating when you've already done your homework and negotiated the best deal possible. Once in the finance department going over the paperwork, you see a higher price than you originally agreed upon. Upon further inspection you notice several additional fees and charges the salesman never told you about.
So which of these additional fees are legit and which ones are not? I've broke down the most common new car fees for you below. Familiarize yourself with all of them so you'll be able to recognize and avoid a dealer trying to take advantage of you.
What you'll find in the section:
What Dealer Fees Should You Pay When Buying a New Car?
The most common additional fees charged by car dealerships can basically broke down into three categories; sales tax, vehicle registration fees, and a documentation fee. Fees that fall within these categories are legit, legal, and are very difficult to negotiate with a dealership. However the "Doc Fee" is an additional charge many people have been able to get around paying, read more about it below.
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Doc Fee or Documentation Fee
All dealers have one, the charge is meant to cover the cost of office personnel doing the paperwork after the sale of a new or used car. Most dealerships charge anywhere from $50 to $500 and the fee is normally not brought to your attention until right before you sign the paperwork for your vehicle. Documentation fees vary from state-to-state and some states have a maximum limit a dealer is allowed to charge. The lowest average is $75 in New York, with the highest average being charged in Florida at $670.
A doc fee of $500 can raise your monthly payment by approximately $10 a month depending on your loan term and interest rate. Some dealer's will negotiate the additional charge with you, if you find one that will remove the fee, they will most likely discount the car the same amount as the fee and leave the doc fee on the paperwork.
I've added this handy car dealer fee chart to help you see the estimated average documentation fees charged by dealers in each state. Use caution with states that don't have a maximum limit, unscrupulous dealers can mark up the doc fee as high as they want to scam an unsuspecting buyer. You can use it to determine if the dealer you're buying a car from is charging close to the average of what other dealers are charging in the area.
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Vehicle Registration Fees and State Sales Tax
These charges are normally your responsibility to pay. Sometimes a dealer will negotiate some or all of these charges, but not often. Dealers will also hold events, or sales, claiming they'll pay your tax, title or registration if you purchase a vehicle from them. Use caution when negotiating one of these deals. If the dealer can afford to pay these fees for you, they may be making more than you think selling you the vehicle.
State Vehicle Registration Fees
Vehicle Registration - The amount the state charges to register a new car, this also covers title assignment and the cost of license plates. After you've purchased the vehicle, the dealership saves you a trip to the Department of Motor Vehicles or Registry by providing this service for you.
The vehicle registration fee will vary depending on the price of the vehicle, normally the more expensive the vehicle, the higher the registration fee will be. These charges are not normally negotiable with the dealer, however sometimes a dealer may have a sale or special where they will throw in the registration fee.. Like the doc fee, they'll leave it on the paperwork and discount the vehicle an equal amount.
State Sales Tax on Vehicle Purchases
Sales tax on a vehicle can be very expensive, some states will allow you to finance your tax, title, and registration and others will make you pay it at a later time at the DMV, registry, or tag agency.
For example, sales tax on a $28,000 vehicle at 7 percent would be $1,960. Most counties and cities will add a quarter percent, so the amounts may vary within different areas in the state.
Tax charges also vary from state to state, some states will charge taxes on the total price of the vehicle and some will only charge tax on the trade difference (the amount left over from purchase price minus your trade amount).
Dealer Regional Advertising Fees
All car dealers are required to participate in regional advertising to promote the dealers within their region. This is how manufacturers pay for those really nice and fancy commercials you see on national television that invite you to visit your local area dealer. Advertising is a huge part of a dealerships budget, they can vary per region and can run anywhere between $250 to $400 or more.
Some manufacturers like Honda build the fee into the factory invoice price. Others, such as Toyota, may list the charge as a separate line item and disguise it with initials like TDA (Toyota Dealer Advertising Fee) or FDAF (Ford Dealer Advertising Fund).
The rule is you're responsible for the advertising fee and most dealers will not negotiate the amount, but you never know how bad a dealer wants to move a vehicle so I'd at least make a run at them. One thing to watch for is unethical dealers trying to pass off their in-house advertising fees by listing them on the purchase order also.
Keep in mind, regional advertising fees are separate from the expenses dealers incur from advertising their own vehicles and the expense of in-house advertising is not charged to the consumer as a separate fee.
You will want to proceed with caution when an advertising fee is not listed on the invoice but the dealer is including it within the final price of the vehicle. They may be attempting to double-dip you for the fee or stick you with some other BS fee.
An easy way to figure out if an advertising fee is legit is to call other same brand dealers in the same region and ask them how much the fee is on the car you're wanting to buy.
The chart below will not allow you to calculate an exact vehicle cost. It will help you get a good of what you will pay. Registry fees are tricky to calculate, you can visit your states Department of Motor Vehicles (DMV) web site and use their calculator. Most states also have minor charges (less than $50) for environmental laws. Documentation fees change frequently, I do my best to keep the chart updated. If you know of any changes please let me know and I will make the necessary changes.
New Car Dealer Fee and Tax Chart
|State||Maximum Sales Tax (%)1||Average DMV Fees||Trade-In Sales Tax?2||Are Rebates Taxed?3||Doc Fee Limits4||Average Doc Fee|
|District of Columbia||5.75%||$497||T||Y||No Max||$300|
|Michigan||6%||$230||T||Y||$190 or 5% of price, whichever is less||$165|
|New Hampshire||0%||$60||P||N||No Max||$315|
|New Jersey||7%||$93||P||Y||No Max||$335|
|New Mexico||8.69%||$45||P||Y||No Max||$330|
|North Carolina||7.5%||$28||P||Y||No Max||$550|
|North Dakota||8%||$70||P||Y||No Max||$175|
|Ohio||8%||$48||P||Y||$250 or 10% of price, whichever is less||$250|
|Oregon||0%||$86||P||N||$75 or $100 if filed electronically||$75|
|Rhode Island||7%||$32||P||N||No Max||$220|
|South Carolina||8.5%||$39||P||Y||No Max||$305|
|South Dakota||6%||$48||P||Y||No Max||$115|
|West Virginia||7%||$30||P||Y||No Max||$185|
1) Maximum Sales Tax
In some areas, you may pay a combination of state, county and local taxes. Keep in mind, this is the MAXIMUM tax you could be charged in each state.
2) Trade-In Sales Tax
If there is a "T" in the column, it means you will pay take on the full amount of your new car purchase price. If there is a "P" in this column it means you will only pay sales tax on the trade difference ( the difference between your new car purchase and the value of your trade-in), saving you money.
3) Are Cash Rebates Taxed?
A "Y" in this column means that the buyer will pay tax on the purchase price before the manufacturer cash rebate is applied.
4) Documentation Fee
This will tell you if the documentation fee is regulated by the state and the maximum amount allowed by state law.
Other Dealer Fees and Taxes
Fees are not the only thing that affect how much you pay for a vehicle, taxes also affect the total cost of the car. Just like fees, taxes vary from state to state. Here are a few different ways states handle the way they charge tax on when buying a new car.
Taxing Your Trade-in
Some states will give you a nice little tax break when you trade in your old car. They do this by only taxing you on the "Trade-Difference." This is the balance after subtracting the amount you received from your trade-in. This is how it works:
$28,000 - New Car Price
$10,000 - Trade-in Amount
$18,000 - Taxable Trade Difference
Your trade difference of $18,000 is the amount you will pay taxes on. If you see a "P" in the chart above, this is how your state handles taxes.
If your state has a "T" in the tax column, your trade has no bearing on the transaction and you must pay sales tax on the full amount of your new car purchase.
$28,000 - New Car Price (Pay Tax on This Amount)
$10,000 - Trade-in Amount
$18,000 - Trade Difference
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Customer Cash and New Car Rebates
These types of discounts reduce the purchase price of the vehicle. Most states charge sales tax on the full purchase price of the vehicle BEFORE the rebate is applied to discount the vehicle. For example, a $28,000 car that has a $1,500 cash rebate reduces the vehicles sales price to $26,500. However, you'll still pay sales tax on the original purchase price of $28,000.
There are some states that charge sales tax after the rebate is applied. In the car dealer fee chart above, in the "Are Rebates Taxed?" column, if there is a "Y" in the column, it means sales tax is calculated on the vehicle's purchase price before the incentive is applied.
Other New Car Dealer Fees
Unethical dealers may attempt to "slide-in" other excessive fees into the contract. These fees are disguised with official sounding names such as "Shipping," "S&H," "Dealer Prep," "Handling," or "Destination" (separate from the official fee on the window sticker). If you see destination fee charged twice, they're attempting to scam you.
Advertising fees added to the contract BY THE DEALER are bogus fees. Separate from regional advertising fees, the dealer is attempting to offset their own advertising efforts. You should challenge them or have them discount the price of the vehicle to match the charge of the fee.
The best way to find out what fees will be charged, ask about them early in the car buying process and negotiate them accordingly, upfront, before signing any paperwork. Then keep an eye out for any attempt to add additional fees to the car deal.
Car Buying Tip - State fees and how your vehicle purchase is taxed will vary depending on the region and state you live in. Always ask beforehand what fees and charges are associated with buying a car in your local area.
A good way to find out this information is to ask for an itemized list from the dealership you're buying the car from. Any legitimate car dealership should be able to email this list to you when requested.
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