If you are considering purchasing a new (or new to you) automobile, you may be wondering if there is any way to avoid all the added dealer fees. The answer is both yes and no as some dealer fees are almost unavoidable and are legally mandated. Keep reading to learn various ways to avoid paying dealer fees on your car purchase.
What Exactly Are Dealer Fees?
There is one thing you have to come to grips with—license, title, and registration fees are the same for all consumers, based on the ZIP code where they live. These are state fees, not dealer fees, and are merely collected by the dealership and sent to the state. That means that, while these fees are part of the purchase process, they are not a dealer fee.
A dealer fee is the documentation or preparation fee charged by the dealer when buying a new car. This is also often legally mandated or capped by the state in which you live. The documentation fee is the amount charged by the dealership to process your license, title, and registration with the state’s Department of Motor Vehicles.
Almost every other fee is a method for the dealership to generate more revenue, or profit, from the sale of the automobile. They have names like “destination charge,” “vehicle preparation fee,” and “delivery charge.” Often, many of these “fees” are actually for the same thing. The vehicle preparation fee is often already baked into the cost of the destination fee, so you are essentially paying for the same thing twice, or three times if the dealer has also added delivery fees.
6 Tips for Avoiding Dealer Fees
Even though some new car dealer fees are unavoidable, there are things that you can do to lessen their impact. One of the most effective ways is to be an informed consumer. When negotiating with a dealer, you are your only advocate. No matter how friendly they may seem, all of the dealership’s employees are looking out for the dealership, not you.
1. Pay the “Fee” But Negotiate the Price to Offset the Fee Amount
While dealer fees themselves may not be negotiable, the price of the automobile should be. Do your research online to determine how much other consumers are paying for a car in your area. Armed with that information, you will know if you are getting a good deal. Then, try to get the price lowered by the amount of any documentation fee. Not only will this wash out the impact of the fee itself, but it will also lower your sales tax, which will save you even more money.
If the dealer will not come down on price, see if there are any accessories or services that they will throw in to sweeten the deal for you. This could be in the form of free car washes, oil changes, floor mats, etc. Non-cash incentives such as these will add value to the purchase without costing the dealer that much money.
2. Ask for an Itemized Listing of Each Fee
Ask for a list of what each fee charged covers. Many times, the destination charge also covers the cost of preparing the vehicle for sale (washing, filling with gas, etc.), so a separate vehicle preparation fee is not necessary. If the dealer is unwilling to explain the fees, such as lot fees, advertising fees, etc., walk away from the deal.
3. Obtain Pre-approved Financing From Your Bank or Credit Union
You can avoid many hidden dealer fees by simply financing your car elsewhere. Things like credit insurance, GAP insurance, and other fees involved in financing the vehicle vanish when you walk into the finance manager’s office with a pre-approved loan from your bank or credit union.
4. Be Prepared to Walk Away From the Deal
Your best defense against paying exorbitant dealer fees is to walk away from the deal. If a dealer will not negotiate the price to offset their fees, there is probably another dealership that will. That is the beauty of competition.
5. Buy a Used Car
Buying a used car is typically a much different car-buying experience—that is, if you are not buying used at a new car dealership. If you are buying a used car at a new car dealership, your experience will be similar to buying a new car, including all dealer fees. Buying from a small used car dealership or an individual will be different, however.
When buying a used car from an individual, there are no dealer fees because the individual is not a dealership. It is incumbent for you to realize that there are also no guarantees as to the quality of the vehicle. You should take the vehicle to a mechanic to make sure that it is mechanically sound and have an inspection performed. Once the purchase is complete, it will be up to you to visit your state’s DMV and pay the license, title, and registration fees. In some cases, sales tax on the vehicle will also be collected at the DMV as well.
Buying from a small used car dealer is a mixed bag. Some will have dealer fees like the bigger dealerships. Still, usually, they will only consist of the documentation fee, assuming that they prepare the license, title, and registration, and possibly an inspection fee as well to make sure that your car will pass the state’s inspection. Note that this is not necessary for most states if the car is less than 3 years old.
It is always a good idea to insist that you take the vehicle to an independent mechanic to have the car checked out. Have it inspected at that time, and show proof of inspection to the dealer to get the inspection fee waived.
There should be no other fees involved. Things like destination charges are for delivering the vehicle from the factory to the dealership. In used car sales, no such transportation charges should be levied.
6. Buy Online
Buying a used car online with Carvana is simple and an effective way to avoid dealer fees! Our pricing model involves no-haggle pricing plus the applicable state license, title, and registration fees. There is also no visit to a finance manager’s office where high-pressure sales tactics can be applied.
When buying a used car online with Carvana, you choose the vehicle you want, have the choice to personalize your own financing, and trade-in your old vehicle before completing the purchase process. The car is then dropped off at your doorstep, giving you seven days to decide whether car is right for you. Nothing could be simpler.
Carvana does not charge fees of any kind, including documentation fees. While they will collect sales tax, it may be up to you to actually file the paperwork (license, title, and registration) on your own at the DMV. Make sure you know what your responsibilities will be when making an online vehicle purchase.
While some dealer fees are unavoidable, following the above steps can help you get a better price on a new or used automobile.