Car Dealer Fees: What They Are and How to Avoid Them

Car Dealer Fees: What They Are and How to Avoid Them

So you're on the hunt for the ride of your dreams, be it a car, truck, SUV or van. Congrats!

Maybe it's new. Or perhaps it's a used model, which, if it is, you're probably already deep in the know about the huge value that comes simply from opting for a used vehicle rather than a new one.

Either way, before you seal the deal on that new or used car, it's vital for you to know all the ins and outs of the types of fees that are standard among traditional car dealers.

You should also know that in this day and age, buying a used car needn’t involve the runaround that usually goes down at your average car lot at all. Case in point: Shift, which makes the whole process literally as easy as the click of a button from the comfort of your own home. You can browse, compare and buy without ever getting off the couch. 

Keep in mind that when purchasing a new or used vehicle from a traditional dealer, the grand sum amount that you pay – what dealerships often refer to as the "out-the-door price" – consists of several different independent surcharges. Sometimes these are worked into the total price, but more often than not – as is the case with car dealer fees – they're tacked on as additional costs.

In this article, we break down the most typical dealership fees, several of which are nothing more than unnecessary expenses with gussied-up names that old-school dealers have used to nickel and dime their customers for decades now. With a little know-how, you can avoid them altogether.

Or, better yet, you can take your used car-purchasing experience to a whole new level altogether and skip all the hassle at the typical dealer by buying with Shift.

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What sort of taxes and other governmental fees are involved with purchasing a vehicle?

Whether you realize it or not, when you buy a car, you're sending a pretty penny Uncle Sam's way, too. Purchasing a new automobile requires paying city, county and state sales taxes, an annual vehicle license tax and a personal property tax as well.

Aside from taxes, your local government charges a number of other legal costs as well, such as the fees associated with  title, tags and registration.

Title fees cover the expense of transferring the vehicle's official documents to the new owner's name and range anywhere from less than $5 or as much as $150 depending on the state in which you live.

The cost of registering the car in the buyer's name is covered by registration fees and can differ dramatically as well. Some states have a standard set fee regardless of the make, model and model year of the vehicle, while others charge depending on the weight and the age of the car. 

Tag fees are associated with the physical license plates that must be worn on the vehicle. Again, the exact amount differs from state to state, but be aware that it's another expense that you'll undoubtedly have to pay.

What is a doc fee?

The term “doc fee” may sound as official as all those other aforementioned governmental fees, but the truth is they're little more than an extra source of revenue for the dealer. Essentially, they're intended to counterbalance the negative profit margins of less productive members of the dealer's sales team. 

Doc fees skirt the boundary between legal and illegal. You should be aware that you may – and experts will advise that you should – haggle over the doc charge with a car dealer. Also keep in mind that the dealer will never erase the cost from your buyer's order; instead, the selling price of the vehicle will be reduced by the same amount as the doc fee.

Dealers often tell buyers that they're unable to erase the fee from the bill of sale, which technically isn't a lie. But what they won't tell you, unless you coerce them into doing so, is that they are able to alter – and more important, lower – the doc fee amount altogether.

Doc fees also vary from one state to the next, and they differ from one dealer to the next, too.  Many states thankfully put a limit on doc fees to discourage dealers from taking advantage of them. In California, for example, doc fees can go no higher than $85, whereas in Florida, dealers are known to charge an additional $1,000 for a doc fee.

If you're wishfully thinking the arguably downright shady dealings of car dealers go no further than doc fees, think again. There are plenty more.

What other types of fees are common among traditional car dealers?

Then there's what's known as a “reconditioning” or “preparation” fee, which is commonly seen on bills of sale belonging to used cars that are purchased from dealerships. Dealers fold into the total sales price of the vehicle the cost of having it “reconditioned,” which refers to having it inspected by their own team of mechanics as well as any detailing and other cosmetic procedures that it undergoes in preparing it for the sales floor. Better said, they pass those expenses right along to the buyer. Experts warn to be highly aware of reconditioning fees and for buyers to seriously reconsider purchasing a used vehicle from a dealership that charges reconditioning fees.

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How do destination charges differ from a vehicle's MSRP?

The term “destination charge” refers to the cost of transporting the vehicle from its place of origin – usually the factory – to the sales floor. Technically, it's already figured into the MSRP – short for “manufacturer's suggested retail price – or the “sticker price” of a new vehicle. That's why many experts consider destination charges to be a sham, especially with new cars and especially if you happen to see it listed separately from the MSRP.

Even to cover its own marketing costs, a dealership may attempt to collect an advertising fee. The truth is the dealership should add this expense to the car's price to begin with, rather than billing it as an additional charge.

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What does the term “nitrogen fee” mean?

Next we have what's known as a nitrogen fee, which the dealer charges a coy extra hundred dollars to simply fill your new ride's tires with nitrogen rather than regular air. This is based on the hokey idea that nitrogen molecules are larger than oxygen molecules – which is true, by 2.7 percent – the tires will stay full longer, which is completely debatable. What is true, without a doubt, is the fact that nitrogen already makes up 78 percent of the “regular air” we breathe in and out 24 hours a day, seven days a week. So there’s little need for you to pay an additional $200 or so for that additional 22 percent of nitrogen in your tires.

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Are cash fees really a thing?

If you happen to be paying for your vehicle in cash rather than credit or financing, some dealers will actually charge you an additional fee for that, too. Why? Because many dealers make humongous profits behind the scenes of your contract by way of upselling your loan or slyly adding on extra costly warranties.

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MINI Countryman Cooper S $20,950
30-Day warranty
Free 7-day return
Free 7-day trial return
30-days warranty
No-Contact Test Drives
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Shop Used Cars

Am I required to pay extra for a used vehicle's history report?

Experts also warn against allowing a used car dealer to force you into paying for a vehicle history report, too, as they surely already have access to them. Shift uses powerful machine learning algorithms and loads of data to deliver fair, no-haggle prices from the start. What's more, each Shift vehicle comes with a vehicle history report at no extra charge, too, so you can know the car's complete background before you decide to buy or not.

As you begin your quest for a new or used car, truck or SUV, it's crucial for you to do your homework ahead of time – essentially by reading articles such as this one – so that you know what you're getting into. That way you'll understand the various fees and taxes – both legit and not-so legit – that are associated with the car purchasing process.

Remember, knowledge is power, especially when it comes to purchasing a vehicle. Understanding car dealer fees ahead of time will undoubtedly lessen the odds of a salesperson swindling you with a bunch of fast talk. But don’t forget, you can bypass them altogether simply by opting to buy with Shift online from the comfort of your home.

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Author
Shift Editorial Team