What are Dealer Fees When Buying a Car?

Many dealerships charge fees when selling new or used cars. These fees might cover the cost of new license plates, dealer prep services, or sales tax.

It's important to understand these fees so you know which ones you might be able to negotiate. Learning the most common dealer fees when buying a car helps you save money as you begin the car buying process.

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What Are Common Dealer Fees When Buying a Car?

Car buying fees or dealer fees are the extra costs the dealership charges when someone buys a car. Common dealer fees include:

Destination Fees

Destination fees refer to the dealership's transportation costs. The car dealership might charge you this fee if you buy a new car that needs to be delivered. This fee depends on the location of your new vehicle.

You can expect to pay less in destination fees if the vehicle you're buying is already on the lot. If you order a specific model or color, the dealership might have to pay to transport it to the lot so you can pick it up.

Some dealers might also charge a dealer preparation fee in addition to the destination fee. This charge covers the cost of a car wash or professional cleaning before they hand it off to you. This fee might be included in the cost of the car or listed as a separate charge on your sales contract.

Delivery and preparation fees should already be part of the destination fees. If the dealer tries to add this fee on top, you'll want to check the fine print to avoid being double charged.

Documentation Fees

Documentation fees, sometimes referred to as doc fees, refer to the handling and processing of paperwork. Dealerships spend a lot of time preparing the sales paperwork, and some might charge you for this service. The price of doc fees can vary widely. Some dealerships charge less than $100, while others charge hundreds of dollars in doc fees.

Some states have a maximum doc fee a dealership can charge. For example, California has doc fee limits capped at $80.

On average, according to Consumer Reports, you can expect the median doc fee to be between 1 and 3 percent of the vehicle's total cost. This service can save you a trip to the Department of Motor Vehicles because the dealer handles all the paperwork for you. Negotiating the doc fee is not usually possible since it covers the required paperwork.

Title and Registration Fees

All states require drivers to register their vehicles. When you buy a car from a dealership, the dealer might take care of the registration process for you. This includes ordering the car's title and securing the license plate.

The dealership charges you the cost of registration and title, and some might charge an additional fee for completing this requirement on your behalf. Title and registration fees typically depend on the value of your car. Cars with higher price tags often have higher registration fees. This means you can expect new car fees to be more expensive than used car fees.

Sales Tax

All U.S. states charge sales tax. Similar to how you have to pay tax when buying goods, you must also pay tax on a new vehicle. The sales tax rate you pay varies depending on the state in which you live.

Some states allow buyers to deduct the value of a trade-in from their purchase price, reducing their tax liability. Some buyers are surprised at the cost of sales tax, which can be a significant percentage of your purchase.

For example, if your state charges a combined 8 percent in state and local taxes, and you buy a $40,000 car, you can expect to pay $3,200 in taxes. If you have a trade-in worth $10,000, you can reduce your tax liability to $30,000 or $2,400. The car price directly correlates to how much you can expect to pay in taxes.

Buyer rebates and incentives can also reduce your tax liability. However, only some states allow you to use rebates and incentives to reduce your tax obligations.

Warranties and Maintenance Costs

Some dealers roll the cost of an extended warranty or maintenance plan into your fees. You can decline these if you don't want to pay the extra cost. The dealer might add other warranties to your payment, including tire and wheel protection, a powertrain warranty, a restraint systems warranty, or a corrosion warranty.

Always consider whether the cost of an extended warranty is worth the added fee. In some cases, it makes more sense to build your own emergency fund to handle unexpected car repairs. Extended warranties might be good investments on some cars, but it's important to consider how much you value the added financial protection.

GAP Insurance

Some lenders might require you to purchase guaranteed asset protection (GAP) insurance. This insurance policy is in addition to your traditional insurance plan. It covers the difference between the value of your vehicle and your auto loan. The car price you pay and how much it's worth affect how much you'll have to pay for GAP insurance.

GAP insurance might be necessary if you buy an expensive car, pay over market value, or put a small deposit down on the auto loan.

Market Adjustment Fees

A market adjustment fee means the dealership has adjusted the price of a vehicle to be higher than the manufacturer's suggested retail price (MSRP). This might be because the vehicle is part of a shortage or is currently in high demand.