When you buy a car, there’s the actual price of the car of course, but there are always other costs and fees involved.
Some fees are required, some are not. Some are car company fees, some are dealer-added fees and charges. And some are official fees and taxes required by the state, county, or city where you live.
These additional car buying costs and fees can be different depending on whether you buy used or new. Charges can also vary by car company, type of vehicle, dealership, and your location.
Let’s take a closer look.
Car Company Charges
When you buy a brand new car from a car dealer, the window sticker shows a destination charge, which is a kind of shipping and delivery charge and can vary by car company but is always the same amount regardless of the shipping distance from the factory to dealer. The fee is not marked up by dealers and is not negotiable.
Dealer Doc Fee
Most dealers, for both new and used cars, charge a documentation fee, often simply called a “doc” fee. It’s a kind of administrative fee for the services the dealer performs on behalf of customers. The services might include finding financing, distributing loan or lease applications, and submitting required legal paperwork to local government DMV and tax offices.
Dealer doc fees are common practice these days and can vary considerably between dealers. Many dealers have the fee already printed on their sales forms, which is a signal to customers that the fee is not negotiable. You can always try negotiating the fee out of a deal, but the dealer will always find a way to add it back in, somewhere else in the deal.
Dealer Prep Fee
Dealers often add miscellaneous added-profit fees that can usually be negotiated out of a deal, if you notice them before signing your contract. For example, dealers are required by their car company to prepare new cars for delivery to customers, and it’s not intended to be a separate fee, but many dealers charge for it anyway.
Most states have a sales tax on car purchases, whether new or used from a dealer, or a used car from an individual.
The tax is typically charged at the same rate as for other types of purchases in your area. For example, if you normally pay 6% tax on the purchase of a pair of pants, then you also pay 6% on your car purchase.
If purchased from a dealer, the dealer will collect the tax at the time of purchase and submit it to the proper government revenue department.
If you purchase a used car from an individual, you pay sales tax at the time you go to the DMV and register your car. The tax is typically based on the “book” value of the car, not the sale price.
Since tax laws vary widely between states, and can change often, you should check the laws in your state on the web site for your state Department of Revenue.
Some states, counties, and cities charge a kind of property tax on motor vehicles. It can be called by various names and is typically based on the “book” value of the vehicle. It may be a one-time charge to be paid at the time of vehicle purchase or registration, or as an annual charge to be paid at the time of registration renewal. Contact your local motor vehicle government offices to find out how it works in your location.
Other Official Fees
Depending on where you live and the type of vehicle you buy there may be other fees charged on your car purchase.
For example, there can be a variety of small environmental-protection related fees, or fees related to a trade-in vehicle.
Another Federal-imposed tax is the gas guzzler tax on vehicles that have a combined fuel economy of less than 22.5 MPG. The tax can range from $1000 to $7700, depending how bad the fuel rating is.
Although not a fee charged at the time you purchase or register a vehicle, auto insurance is a requirement in most states before you can register and drive an automobile. In fact, typically, a dealer will not let you take a car off his lot without your proof of insurance, and you cannot register a vehicle or get a tag without it.
Most states set a minimum amount of liability insurance that you are required to have and maintain. These minimums are nearly all out of date and considerably less than is wise to have in these days of million-dollar accident law suits.
Full coverage insurance (collision and comprehensive) is not a government requirement, but is often mandated by a finance company when you use a loan or lease to acquire your vehicle.
Insurance can be expensive, and is one of the major costs of car ownership. It’s recommended that you always shop different companies to get quotes because rates vary considerably. We recommend NetQuote.com as one of the best sources of fair car insurance rates.