What Are the Fees When Buying a New Car?

There’s no question that purchasing a new car can take a toll on your wallet, and paying for the vehicle itself isn’t the end of it. There are taxes and fees on new cars that you should be aware of before you sign your name on that shiny dealership contract. So, what are these new car fees, and what do you need to do to prepare for them?

Department of Motor Vehicles (DMV) Fees

The fees paid to the DMV go to the state as mandated by the law. Dealerships include these new car taxes and fees in their final cost calculations when you buy from them.

Vehicle Title and Registration Fees

Your new vehicle will need to be registered with the state and assigned a title naming you as the legal owner. The new car registration fee also pays for your license plates. Your dealer will usually handle registering your new vehicle for you, saving you a trip to the DMV. The registration fee will depend on the price and weight of the vehicle. The heavier and more expensive the vehicle, the higher the fee. The rates per state vary, and some states factor in fuel efficiency and vehicle type. For example, the state may impose higher fees on electric vehicles (EVs) and those that average less than a specific miles per gallon (MPG) value set by the state.

Sales Tax

Sales taxes often take new vehicle buyers by surprise. The sales tax can cost up to 13% of the vehicle’s price depending on the state. Certain counties and cities have their own laws as well, which may result in higher or lower rates.

Inspection and Emission Fee

Many states require new vehicles to pass a state safety and emissions inspection before being sold. The dealership will handle this, but the cost will be passed on to you in the final invoice. Thankfully, this is usually a minimal amount that’s below $40.

Dealership Fees

Primary dealership fees come from the cost of various dealership services that are looped in with your new vehicle contract. You can negotiate some of these fees before signing, lowering the cost of your overall contract.

Documentation Fee

Because the dealership prepares and files your sales contract and other relevant paperwork, it charges you what’s called a new car documentation fee. Certain states have limits on these fees but others do not. The difference can be significant. Some states can demand the fees remain under $100, while they can exceed $600 in states without the imposed limit.

Advertising Fee

Buyers will often see an advertising fee on their contracts. It’s best to double-check that the fee is on the invoice as well. If it is, this means it’s an advertising fee required by the manufacturer, and you’ll need to pay it either way. If it isn’t on the invoice, however, it’s likely an “unofficial” advertising fee added by the dealer. They justify these outside advertising fees to offset their own advertising efforts outside those made by the manufacturer. If this is the case, you can challenge or negotiate the cost to have it lowered.

Dealer Markup

Dealer markup is the profit a dealership makes by marking up the selling price of a vehicle over the manufacturer’s suggested retail price (MSRP). These markups are often applied to high-demand vehicles. The markups can be significant depending on the dealer and vehicle so watch out for the following terms on your sales invoice:

• Market adjustment
• Additional dealer markup (ADM)
• Additional dealer profit (ADP)
• Adjusted market value

Try to catch these terms on your sales invoice before signing, and avoid purchasing a vehicle with too high a markup. Manufacturers highly discourage dealerships from price gouging their products in this way, but many still persist, so stay vigilant.

Delivery and Destination Fee

The delivery and destination fee is what the dealer charges for transporting the vehicle to the shop for you to pick up. This fee can often be negotiated before signing the contract.

Optional Dealership Fees

Your dealership might offer you the following options while preparing your contract. However, you might also find them on your sales invoice without having asked for them. Always ask the dealer if these are optional, because you might find you don’t need all of them.

Warranty Extension

A warranty extension kicks in after the manufacturer’s warranty on your vehicle runs out. Dealers often offer this extension, but they aren’t usually the ones to carry out any repairs. Double-check that the company connected to the extended warranty is reputable, and make sure to check the fine print to determine the warranty’s coverage, scope, and length. You might find that buying an insurance plan elsewhere is preferable to buying a warranty extension.

Prepaid Maintenance Plan

Prepaid maintenance plans will allow you to avail of scheduled and expected maintenance services. These plans only cover preventive maintenance, however, and not repairs. You’ll likely need to discuss these plans when buying a vehicle that doesn’t already have a maintenance plan included in its retail price.

Ask where you can have the maintenance services conducted because some will contracts only allow you to avail of the service with the dealer. In addition, maintenance might be limited to specific intervals like oil changes every 10,000 miles and such. If they’re part of your contract with the dealership, these plans will cost you interest as you pay them back. As a result, it might be better to pay for the services separately yourself as needed.

Insurance

Some dealerships will offer some form of insurance for your new vehicle. For these, you’ll want to do some research on other automotive insurance companies in your area and what they offer. If they have better deals, then you can opt to remove insurance from your dealership contract.

Guaranteed Asset Protection (GAP)

GAP is meant to cover the “gap” in value between your vehicle’s worth and what you’d owe if it’s totaled. This type of insurance isn’t needed if you’ve made a down payment, but you might want to consider it if you haven’t.

Loan Protection

Loan protection is in place in case you suddenly can’t make payments due to circumstances like job loss or illness. In those cases, the loan protection insurance would cover the rest of your loan balance.

Add-On Dealership Fees

There are a number of add-on dealership fees that you need to keep an eye out for in your contract before signing. These include smaller, optional services that you’ll find at much cheaper prices elsewhere such as paint protection, pinstriping, window tinting, VIN etching, and so on. You’re already paying enough fees for your new car. Avoid these unnecessary fees with your dealership, and your wallet will thank you.

Are There Additional Fees to Buying a Car That You Can Avoid?

Some dealerships will also offer a tire-and-wheel warranty that covers damages from potholes, nails, and broken glass. While it might sound like a great investment, it might not be worth it if you drive through well-maintained roads.

Anti-theft devices are also popular upgrades that dealerships will offer when you buy a new vehicle. While anti-theft devices are great safety features, it’s best to double-check if the specific systems offered by your dealership are reliable.

What Fees Must Be Paid Upfront When You Buy a Car?

It depends on your chosen dealership. Some dealerships will sell you a new car without asking you to pay any fees upfront. However, this doesn’t necessarily mean that you don’t have to pay for them. Instead of adding these fees to your initial payment, they’ll usually include them in your monthly car payment instead.

How Is the Car Sale Taxed?

Sales tax can vary depending on where you live, but there are also other factors that can affect how much you’re taxed. Here are a few examples:

Trade-in

In several states, you can pay a lower sales tax if you trade in your old vehicle. Some states that offer trade-in sales tax credits include Alabama, Alaska, Florida, and New York. You usually only have to pay the difference between the new car and the trade-in. 

Rebates and Incentives

Some dealerships will offer cash rebates and other incentives upon purchase of the vehicle. In some states, the sales tax is computed based on the deducted price. In most states, however, the sales tax is computed before the rebate is applied.