Updated for 2022: Buying a car isn’t easy. Figuring out what vehicle you want: hard. Negotiating a fair price: challenging. Understanding all the car dealer fees that are added to your final buyers order: infuriating.
Unlike nearly any other purchase, buying a car is full of gimmicks, tricks, and fees. Why? It may have something to do with the fact that dealerships have operated in this way for over a century now.
In modern society, few purchases are more important, as well as complicated, as buying a car. On top of existing pressure from the salesperson, and the weight of making such a hefty purchase, confusing fees and taxes can make car buying incredibly stressful. Maybe one day buying a car will be as easy as ordering something from Amazon, but until then, our hope is that we can help you better understand what fees and taxes, both legitimate and illegitimate, you should expect when buying a car.
Knowledge is power, and after reading this short guide, you should feel more confident understanding what car dealer fees are, and which you should be able to negotiate.
Legitimate car dealer fees
When it comes to making your purchase, understand that the total price of your car (what we frequently refer to as the “out-the-door price”) is made up of a few components. There are legitimate fees and taxes you need to pay to purchase your vehicle, and those fees make up the out-the-door price.
State & local taxes
Buying a car comes with a whole host of taxes. These include city, state, and county sales tax, personal property tax, and often a vehicle license tax, which has to be paid annually. These all vary from state to state, and in the case of sales tax, in even smaller jurisdictions. Our free out-the-door price estimator will help you get a sense for how much tax you’ll owe on the purchase of a vehicle.
Title, Tags, and Registration
In addition to taxes, there are a handful of other legitimate fees that are imposed by your local government. Title, tags, and registration fees are all par for the course when purchasing a vehicle.
The title fee is charged as a cost for the documents required to transfer the title, the cost for this fee can range from $4 up to $150 depending on the state.
Registration fees, charged to cover the cost of registering the vehicle under the buyer’s name, can vary wildly. Some states charge a flat fee, some charge based on weight, while others charge based on how old the car is. Our free out-the-door price estimator will help you get a sense for how much your state’s registration fees will be.
Tag fees relate to the physical plates you need to carry on the vehicle. Again, this varies from state to state, but know it is another fee you should be prepared to pay.
Doc fees straddle the line of legitimate and illegitimate. Know that you can and should negotiate the doc fee with a car dealer. Also know that the dealer will never actually remove the fee from your buyer’s order, instead they will reduce the selling price of the vehicle by the same amount as the doc fee.
Doc fees are simply a profit center for the dealership. It’s a fee that is meant to offset the cost of non revenue producing employees at the dealership. It’s … bogus. But, dealers will tell you they legally can’t remove the fee from your purchase order, and this is true.
There are legal cases where dealerships have been sued for removing doc fees for some customers and not others. Doc fees are here to stay, for better or worse.
Doc fees change from state to state and from dealer to dealer. Many states cap doc fees to prevent dealers from exploiting them. For example you’ll never see a doc fee of more than $85 in California, whereas in Florida you’ll frequently find dealers charging upwards of $1,000 for a doc fee. In some states it’s the wild west.
If you haven’t used it already, I highly recommend using our free out-the-door price estimator. We aggregated doc fees (and other fees) from each state so that you can get an estimate as to what your total out-the-door price will be before going to the dealer.
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Non-Legitimate car dealer fees
The idea behind this fee is that the dealer will, for a healthy fee, fill up your tires with pure nitrogen gas so that they stay full longer due to the size of the nitrogen molecules. Surprise, surprise, this is barely true. Regular air that you would get from just about any tire pump is already 78% nitrogen, and Nitrogen is only 2.7% bigger than oxygen, which makes up almost all of the rest of the air. The additional nitrogen does almost nothing to help the life of the tires.
If a dealer is trying to get you with a $195 Nitrogen tire fee, politely let them know you won’t be able to pay for that.
If you’re purchasing a used car you need to be wary of this fee. When car dealers purchase used vehicles they recondition them to get them “showroom ready.” Reconditioning entails mechanical inspections, detailing, and more. Recon, as it is commonly referred to, is simply a cost of doing business for a car dealer.
If you’re looking at purchasing a used car and the dealer has added an additional reconditioning fee to the purchase price, you should walk away. This is not a fee that you should pay for, this is a cost the dealers imply incurred in getting the car retail ready.
Additional Destination fee
When a dealer buys a new car from the manufacturer they pay the invoice price for that vehicle. Included in that invoice price is a destination charge. This destination charge shows up on the monroney sticker on the vehicle.
If you’re purchasing a new vehicle that has an additional destination fee of any kind, that is bogus.
If you’re purchasing a used vehicle that has any destination fee, that is bogus.
The destination charge is legitimate, but only if there’s one destination charge. The original destination fee is built into the MSRP of the vehicle and you can see it on the original window sticker. Any other destination charges are purely an attempt to make money off of you.
If you didn’t know, car dealers make most of their profit on the “back-end” of a car deal. The back-end comprises finance and insurance profit, aka marking up your car loan or selling you expensive warranties. Some dealers, when they learn a customer is going to pay with cash, instead of finance through them, will up-charge them. This is an entirely bogus fee.
As we’ve discussed in many videos and blog posts, negotiate the out-the-door price of the vehicle, and then discuss how you plan to pay for the purchase.
CarFax or AutoCheck
If you’re engaging with a reputable dealer, there is no reason why you should have to pay for a CarFax or AutoCheck report. Dealers pull these reports already, so simply ask them for one, and they should be able to supply you with it.
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Are dealer installed accessories a legitimate car dealer fee?
Not a fee, per se, but another line item dealers add to the purchase price of your vehicle, dealer installed accessories are a major profit center for new car dealers. Typically dealers will install accessories such as door guards, Lojack, window etch (and more) to a vehicle when it arrives at their showroom. Generally speaking, no mention of these accessories will be made while you’re showing interest in the vehicle. Only once you look at the final numbers for the price of the car will you become aware of $1,000+ in accessories that have already been installed on the car.
Your salesperson or sales manager will say, “I understand you don’t want x, y, and z installed on the car, but they’re already there … I can’t take them off.”
Can you negotiate this “fee?” Absolutely! Sales managers do not expect every vehicle they accessorize to sell for full price. This tactic to boost dealer profit works on a lot of people, but you don’t have to fall prey to it. If you aren’t interested in the accessories, negotiate them off of the selling price of the vehicle. It isn’t easy, but it is entirely within your right to do that.