If you’re about to embark on the purchase of a new car, you may want to identify some possible add-on costs you can expect to see on your final bill.
Negotiating a final price on a new vehicle can be a frustrating process even for experienced shoppers. In fact, U.S. consumers would like to see big changes in that process, says a recent survey by Autotrader, including better options for negotiating online (56 percent of respondents) and negotiating anonymously (45 percent). Seventy-two percent said they’d visit car lots more often if the buying process were improved, and 53 percent said they’d buy vehicles more often. .
“The sleight of hand that goes on at dealerships and with private owners is not always intentional,” writes Geoff Williams on Money.USnews.com. “But nobody wants to buy a car with hidden costs and spend hundreds or thousands more than intended in finance charges, fees and mechanical problems.”
The bottom line: You should be aware of how final costs typically break down when you’re buying a new vehicle, and be prepared to negotiate when listed fees don’t seem to apply to your transaction. An explanation of some numbers that may appear on your bill:
- Dealer cost: This represents the wholesale cost paid by the vendor. It includes warranties and typically factors in other directly related costs such as interest on loans made to buy stock; delivery fees; cleaning; display expenses, etc. On top of that, the dealer must factor in general business expenses such as labor, rent and utilities before adding a profit margin.
- Option costs: This number reflects any non-standard a la carte features you’ve chosen, such as metallic paint, automatic emergency braking, alloy wheels, parking sensors or sunroofs.
- Trade-in value: Your dealer will give you a quote as to what the dealership can pay for a vehicle you wish to exchange for your new one, then subtract that from your total. Trade-ins are subject to sales tax in Texas.
- Finance charges: Whether you secured a loan through the dealer or a financial institution, your agreement will delineate your interest rate, monthly payment amount and agreed-upon payment schedule.
- Fuel cost: If you’ll drive away your new car with a full tank of gas, your bill may reflect that.
- Plates, vehicle registration, title transfer (i.e., DMV fees) and sales tax: These fees are routine, but the average DMV fee in Texas in 2015 was a relatively low $85. Fortunately, Texas is one of 20 states in which cash rebates for vehicles are not taxed.
- Documentation fee: Many dealers list this as an administrative fee to cover paperwork involved in the transaction; amounts are negotiable. In Texas, the amounts aren’t capped by law, and the average fee in 2015 was $135. Doc fees are subject to sales tax.
- Emissions testing fee: If emissions testing is required in your state and the dealership has already handled it, it may pass on that expense.
- Warranty processing fee: This reflects the cost of filing your warranty records with the car’s manufacturer.
- Extended warranty costs: These reflect any warranty coverage you choose beyond the free policy included with your car.
- Credit insurance costs: The dealer may advise you to buy optional credit insurance that negates your loan balance if you die or become disabled.
- Vehicle identification number (VIN) etching costs: You’ll pay this if you directed the dealership to encode your car’s ID number into its windows as an anti-theft measure. It may be a good idea, but it’s likely cheaper elsewhere.
- Prepaid oil changes and tire rotation costs: Some dealerships sell these add-on packages with new vehicles.
In another category are costs most dealers incorporate into their regular business expenses. If you see these on your bill, you should negotiate to have them reduced or removed entirely. “Even if you become aware at the last minute and look through the fees while you're in the finance office, don't be afraid to insist on the removal of a fee,” Williams advises. “Some will be immovable, but a manager may buckle on others if you look like you're ready to flee.”
- Compliance fee: Some dealers charge this to pass on costs incurred in keeping up with general state and federal regulations.
- Floor plan fee: This questionable charge purportedly reflects the expense of keeping your car in the dealer’s inventory.
- Advertising fee: Some dealers add this to help cover their advertising costs. If it’s listed on the invoice, it’s a legitimate charge between the manufacturer and dealer and should be paid, advises Philip Reed on Edmunds.com. But if it’s a last-minute add-on, it should be contested.
- Destination fee: Purportedly the cost of getting the vehicle from the manufacturer to the dealer, this should be itemized on the sticker price, not added as a surprise.
- Dealer prep fee: Some vendors charge you for the final costs of cleaning your vehicle and checking its fluids before you take delivery, but the need for that is debatable in most new cars. The same is true of fabric or paint protection.
You can generally avoid arguments over surcharges if you simply ask your salesman to give you an “out-the-door cost” before paperwork is drawn up, Reed advises.
“In this climate of thin profit margins and tough competition, some dealers may try to hide profit in extra fees or products you don't need,” he explains. “This question flushes out hidden costs in a non-confrontational way. If you get a vague answer about the out-the-door cost or a salesman tells you it is impossible to calculate this figure, you should be on guard.”