Everybody loves and craves that new car smell. Paying too much for that smell, however, stinks. It’s part of most people’s experience in buying a new or used car at a dealership, unfortunately.
Car dealership fees can potentially add hundreds and even thousands to your final bill. Some of the fees you won’t be able to avoid, such as the destination fee, which covers the cost of getting your car from the factory to the dealership. In fact, even if you volunteer to pick it up at the factory, you will still be charged that fee. Still, there are a number of car fees that you can ask to be removed and that may be removed. But that can only happen if you’re aware of the fees in the first place.
So if you’re looking for a new or used car, and you’d like to avoid exorbitant and unnecessary fees, go in armed with as much information as possible. Here are nine common car dealer fees:
— Dealer preparation fee.
— Documentation fee.
— Dealer markup fees.
— Unnecessary add-on fees.
— VIN etching fee.
— Gap insurance.
— Advertising fee.
— Warranty fees.
— Sales tax.
Dealer Preparation Fee
Michael Lowe, CEO of CarPassionate, an auto parts and accessories review website, says that he often sees this fee running between $100 to $500. The fee, Lowe says, is to offset the cost of the dealer preparing the vehicle for sale.
“No such fee is needed and is a clear and brazen attempt at making extra profit, because what they are suggesting is simply a part of what should be done if you are purchasing a vehicle from someone anyway,” Lowe says. “My advice would be to get the unnecessary and fake fee dropped by the dealer before agreeing to any purchase.”
This is also sometimes called a “doc fee” or “document fee.” Either way, it’s charged by the dealer to cover the cost of the paperwork and processing of the title, registration and tags.
“This fee can’t be waived entirely, but research your state’s policy. Some are now limiting the maximum amount a dealer can charge in fees,” advises Richard Reina, product training director at CARiD.com, an automotive parts and accessories website.
You may be able to get it lowered, according to Reina.
“It’s best to know what this maximum is and advocate for yourself if you feel you are getting hit with unnecessary fees,” he says.
And keep in mind that if the dealer won’t budge on the fee, it might go lower on the “out of the door” price — in other words, the standard sales price. Dealerships want your business, and “deal” is literally in the name of a car dealership. So negotiate away.
Dealer Markup Fees
If you see a fee that says ADM, it literally stands for “additional dealer markup.” If you see a fee that says ADP, that is an abbreviation for “additional dealer profit.” This type of fee is practically the reason negotiating on car prices was invented. You should be able to get out of this fee if you push hard enough.
Unnecessary Add-On Fees
You’ll want to be careful of these miscellaneous fees. Adam Rodnitzky is the co-founder and chief operating officer at Tangram Robotics in San Francisco. He says that he recently bought a new Alfa Romeo Giulia, and he says there were two add-on fees that he was able to get removed.
Traditionally, unnecessary add-ons have been things like paint or upholstery protection, Rodnitzky says. “In the case of the Alfa Romeo, the dealer filled the tires with nitrogen and attempted to add $190 to the purchase price. Like the paint or upholstery protection, the benefit is dubious, and worse yet, it’s hard for a consumer to verify that the add-on even exists.”
VIN Etching Fee
Some dealers will lightly engrave the vehicle’s identification number on the car windows and windshield. It’s an anti-theft measure. Sure, a crook can take your car regardless, but they’ll know it’ll be easier for a suspicious police officer to see the VIN number, and thieves won’t be able to easily sell your car’s glass windows and windshield with that etching on there. In other words, it’s to discourage professional auto thieves from taking your car.
Some dealers charge a couple hundred bucks or more for this service. Tell them that you know it didn’t cost them $200 to etch the VIN into the windows, and that you could have bought a do-it-yourself kit for $20 and done it yourself, and that you refuse to pay the fee. Hopefully the dealer will take it off the final price.
This is less a fee and more of an added expense that some dealerships will add to your loan, especially if you’re leasing a car.
“Gap insurance protects you in case the car you have financed or leased is involved in an accident and is declared a total loss,” Rodnitzky says. “The amount of payments remaining may exceed the payout from your insurance company. Gap insurance covers the difference.”
Isn’t that a good thing? You don’t want to total a $30,000 car and have insurance pay $23,000 of it and be on the hook for $7,000.
True enough, and Rodnitzky says that it’s good. But gap insurance, he says, is typically marked up a bit by the dealers.
“In the case of the Alfa Romeo, the opening offer for gap insurance was a $1,500 add-on. I did my research, and we settled on $350,” he says.
Sometimes dealers will make you pay for the portion of their expenses to advertise, to get people like you to come to their store. It’s usually a few hundred bucks, and you can generally successfully tell the dealership that if they want the sale, you’re not paying it.
Pay Attention to Warranties
These aren’t car dealership fees, but when you’re close to signing the deal, you’ll be asked (and often given the hard sell) if you want to pay for one, and they can really add a lot to the price of a car.
“Many of these are overpriced and unnecessary,” Reina says.
Often, too, it should be noted, if you buy a warranty and roll it into the loan, you’re paying interest on the warranty. Some people swear by extended car warranties, and if that’s you, go ahead and get one. But you could definitely argue that you’d be far better off putting money away every month for car repairs in case something goes wrong — and making sure your car is well-insured in case of an accident since an extended warranty pays for car parts going bad due to bad manufacturing (and not for car parts going bad due to, say, running over a pothole).
[See: 35 Ways to Save Money.]
It’s not a car dealership fee, of course — it’s a fee that the government charges. But you should think about sales tax beforehand when you’re budgeting for a car. If your state charges 7% sales tax on a $20,000 car, that’s $1,400. So your $20,000 car is now a $21,400 car, and assuming you’re rolling the sales tax into your monthly payments, you’re paying interest on your sales tax.
The more expensive the car, and the higher the tax, obviously, the worse the math gets. You can’t avoid paying sales tax, but because you will have to pay that sales tax, that’s a good argument for trying to take advantage of any deals or discounts you can get with a dealership or negotiating the final price downward by eliminating other fees.
The lower the price of the car, after all, the less sales tax you’ll pay.
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Update 08/19/20: This story was published at an earlier date and has been updated with new information.