Many car buyers are surprised to see large “dealer fees” on the sticker price of the vehicle they are considering. Both new and used cars often feature various dealer fees on the sticker prices. But which fees are legitimate, which ones can be negotiated, and which ones are something you should not pay? At Carvana, you never have to deal with unsubstantiated “bogus” fees, however this article serves as a brief guide to dealer fees should you find yourself at a traditional dealership.
What Are Dealer Fees?
Dealer fees are charges added by the dealership to the manufacturer’s retail price of the vehicle. They go by various names, such as preparation fees, documentation fees, transportation fees, etc. Anything that is not part of the vehicle’s base price or an option is probably some kind of dealer fee.
Most of these extra charges will be on a secondary sticker on the vehicle’s window. The actual sticker for the vehicle comes from the manufacturer and accurately reflects charges you need to pay for. Those secondary stickers that dealers provide often include things already included on the primary sticker price and are duplicate charges.
Which Dealer Fees Are Legitimate?
License, title, and registration fees are all legitimate dealer fees. These are the costs associated with getting the vehicle licensed and titled to be legal to drive after purchase. These fees are set by the state in which the vehicle is purchased and are not something that is under the dealer’s control.
State sales tax is also collected at the point of sale and will be set by the particular state. This is another legitimate, nonnegotiable fee that you will need to pay the dealership.
The destination charge, sometimes called a transportation fee, is a fee that covers the cost of transporting the vehicle from the factory to the dealership. This is rarely negotiable, even if you pick up your vehicle at the factory. The destination fee is also often set by the manufacturer and is not generally under the dealership’s control (assuming it is on the vehicle’s primary sticker).
Documentation fees are charged by the dealer to cover the cost of filling out all the title and registration paperwork for you. These fees vary, and some states set a cap on them. If you cannot negotiate the doc fee itself, see if you can negotiate the car’s sales price or get some additional accessories for free.
If buying a used car, there will generally be an inspection fee. This fee is to make sure that the car is roadworthy before taking it off the lot. This inspection fee is the same fee that you pay every year when you renew the vehicle’s license plate.
General asset protection (GAP) insurance may be required if you are leasing a vehicle. GAP insurance covers the value of the loan amount when the car’s value has significantly decreased since its purchase. Some banks may require GAP insurance as well. This is generally not negotiable.
Which Dealer Fees Are Negotiable?
Additional destination and transportation fees may appear on the sticker. If you did not special-order the vehicle and took one already sitting on the lot, there is no reason to pay these additional fees. However, if you did “special-order” the car or have one transferred from another dealership, these are legitimate fees you should pay. You can always try negotiating a lower sales price to offset the fees.
Market adjustment fees are often charged in “hot” markets with little inventory. There may be no way around the fee, but it is not mandatory. See if you can get the dealer to waive the fee or lower the car’s selling price.
Loan payment fees charged when financing through the dealership may be costly. Be sure you understand all the loan payment terms and see if your bank or credit union will provide you with better terms if you finance the vehicle purchase through them.
Unnecessary Upsells You Should Avoid
When you reach the finance manager’s office, they will attempt to upsell several services. While not technically fees, these add-ons can raise the cost of your vehicle purchase significantly. The following add-ons are unnecessary.
Dealer preparation fees appearing on a second sticker often include things like vehicle preparation, pre-inspection, and a bunch of other official-sounding items. The key here is that all of these are part of the formal destination charge on the original sticker. Contest these charges, and if the dealer does not budge, walk away from the deal.
Advertising fees are charges that dealers include defraying the cost of advertising the vehicle for sale. These are baked into the sticker price. Any separate fees for advertising should be refused.
Fabric-protectant fees are not necessary. These fees are included to raise the vehicle’s price for what is basically a can of Scotchgard. You can easily do that yourself if you choose.
Rustproofing fees are also unnecessary. Today’s vehicles are already manufactured to stand up to corrosive weather conditions. The dealer has not done anything special, here.
Paint-sealant fees are charges for car wax that will wear off in a few months. Doing proper vehicle maintenance, which includes waxing your car regularly, makes this an unnecessary fee.
VIN tracing, sometimes called VIN etching, is a fee to have your vehicle’s VIN etched on the windshield. This is touted as an anti-theft measure but can be done by a local mechanic for far less than the dealer will charge. If you are handy, there are do-it-yourself kits available for this for around $20.
Extended warranties can provide peace of mind but will add thousands to the cost of your vehicle. Consumer Reports recommends starting an emergency fund and making sure to buy a reliable vehicle instead.
Maintenance plans may also offer peace of mind and convenience, but make sure you are not paying more than the going rate for the services being included in the plan. If you can get an oil change somewhere else for $20, there is no reason to pay the dealership $50 for the same service as part of a maintenance plan. If it is a good deal, then it is OK to purchase.
Credit insurance, such as disability or life insurance that pays for the balance of your auto loan should you be injured or die before payoff, is often offered at the point of sale. You can get these coverages much cheaper through your primary insurance agent for your home or auto.
Any fee that has not been discussed above may not be legitimate. Question every line item on the sticker price and ask what the fees are for. Always be willing to walk away from the sale if things do not seem to be legitimate. There are always other dealerships willing to sell you a vehicle.
By being aware of the additional fees involved in a vehicle purchase, you can approach the price negotiations with confidence to receive a fair price. Doing your homework definitely pays off in this case and can make the vehicle-buying experience less stressful.
