Buying Tips: What Fees Should You Pay?

Interesting | January 23rd, 2007 by 1

You skillfully negotiate the price of your new car and you think you’re getting a darned good deal. But when you see the contract, with …

You skillfully negotiate the price of your new car and you think you’re getting a darned good deal. But when you see the contract, with all the additional fees, you go into a state of shock. Where’d all this stuff come from? Are these fees legit? Or is the dealer inflating costs to try to take back profit?

Edmunds.com has created a chart with all the basic car-buying fees. In addition, we show how sales tax on trade-ins and rebates is handled (both differ from state to state). More about this later.

Most commonly, there are three categories of car-buying fees: vehicle registration fees, sales tax and a document fee or “doc fee.”

Vehicle registration fees: This is the amount charged by the state to register the new car, assign a title (legal proof of ownership) and cover the cost of license plates. The dealer provides this service for you saving you a trip to the DMV or registry but the money goes to the state. Still, it’s good to know ahead of time roughly what this will set you back.

Sales tax: Sales tax on a new car amounts to more than most people expect. At 8 percent, sales tax on a $20,000 car will cost you $1,600. Cities and counties will frequently add a quarter percentage point so the amount you pay will vary within a state. We have provided a maximum tax charged within your state.

Doc fees: In states where doc fees are not regulated by the government a dealership will often sell a car at a very attractive price but then hit the buyer with a $399 doc fee when the contract is drawn up. If you refer to our chart, and see that doc fees are not capped in your state, you should find out early on in the buying process what the dealership charges. If it is high anything over $100 you will need to negotiate more aggressively to offset this price.

Taxing the trade-in: In many states, if you trade in your old car you can get a nice tax break. Here’s how it works. If there is a “Y” in the “Trade-In Sales Tax” column of your state, you are only taxed on the difference between the new car and your trade-in. So, if your new car costs $20,000 and you are getting $7,000 for your trade-in, you will be taxed on the difference, or $13,000. If sales tax in your state is 8 percent, this will save you $560. If there is an “N” in the column, it means that you will pay tax on the full amount of your new car purchase and the trade-in has no bearing on the sales tax you are charged.

Taxing rebates: Increasingly, consumers use cash rebates from car manufacturers to offset the price of new cars. How does this affect the sales tax you pay on your new car? It varies from state to state. Look at the column labeled “Are Incentives Taxed?” If there is a “Y” in this column it means that sales tax is calculated before any customer cash rebates are subtracted. Say you have agreed to pay $20,000 for your new car but there is a $4,000 customer cash rebate. Depending on the state you live in, you will either pay tax on the full $20,000 (which, at 8 percent, would be $1,600) or on $16,000 (at 8 percent it would be $1,280). The difference is $320.

Other Car-Buying Fees
There are two other aspects of car-buying fees which frequently arise that car buyers should know about.

Dealer fees: Dealers can write other fees into the contract and give them official sounding names: “S&H” or “Dealer Prep” or even “Shipping.” These fees are another attempt to take profit on the back end of the deal, when the buyer’s guard is down. There is no way we could list all these bogus fees in this chart. Furthermore, if all dealerships in the area charge the same fees, you might be stuck with paying them. Again, find out early what fees you will be charged and negotiate accordingly.

Advertising fees: Sometimes buyers look up invoice prices on Edmunds and find they don’t match the invoice price given by a dealer. Is the dealer trying to put one over on the buyer? Not necessarily. This is probably because an advertising fee is involved. If an advertising fee is listed on the car’s invoice we consider it a legitimate fee that should be paid. However, if the advertising fee is written into the buying contract by the dealer it is another example of a dealer trying to pass along his expense to the buyer.

How To Use This Chart
Using the information provided below, you can estimate the fees charged on your new car purchase. If you know what you are paying for the car, and any rebates involved, you can calculate sales tax and how it will be charged. It will also tell you the way the tax will be charged if you have a trade-in. If the doc fees are unlimited in your state, you should call the dealer to find out what it charges. Ask if there are any dealer fees other than “tax, title and doc fees.”

While this chart will be valuable in generating an estimate of additional fees, don’t expect to calculate your final cost to the penny. Registry fees, in particular, are difficult to calculate. And some states have nominal charges (less than $40) for local environmental laws. Still, this chart will tell you roughly what to expect and help you budget accordingly.

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