by Philip Reed, Senior Consumer Advice Editor- Edmunds
You skillfully negotiate the price of your new car and you think you’re getting a darn good deal. But when you see the contract, the total is much higher than what you planned on paying. Then you see the problem: There are fees in the contract you didn’t know you had to pay. It leaves you wondering if these new car fees really are legit.
To answer that question, Edmunds.com has created a chart with all the car-buying fees you may encounter. In addition, they show how the different states charge sales tax on trade-ins and rebates. If you’ve never used the chart before, it’s worth reading about the process first. But you also can go directly to the fees chart.
An Overview of the Process
Most commonly, there are three categories of car-buying fees: vehicle registration fees, sales tax and a documentation fee or “doc fee.” Joe Magyar, a tax expert from Crowe Horwath LLP who teaches workshops for dealers at National Automobile Dealers Association meetings, says that dealers have a strong incentive to collect taxes correctly. “Because there are so many dollars flowing through the dealership they often get audited,” he says.
The following are the main categories of fees charged by dealers.
Vehicle Registration Fees: This is the amount charged by the state to register the new car, assign a title (legal proof of ownership) and cover the cost of license plates. The dealer provides this service for you, saving you a trip to the DMV or registry. Usually, the more expensive the car is, the higher the registry fees.
Sales Tax: Sales tax on a new car amounts to more than most people expect. For example, at 8 percent, sales tax on a $20,000 car will cost you $1,600. Cities and counties frequently add a quarter of a percentage point, so the amount you pay can vary within a state.
Documentation Fees: Dealerships charge car buyers a documentation fee, or “doc fee,” to cover the cost of preparing and filing the sales contract and other paperwork. In some states, the doc fee is limited by state law. In other states where doc fees are unregulated, dealerships may sell a car at an attractive price but then add a high doc fee to the contract. Review the chart to see how your state handles doc fees. If your state does not limit doc fees, find out early on in the buying process what the dealership charges. If the doc fee is substantially higher than your state’s average listed in the chart, negotiate the car’s price more aggressively to offset this fee. And keep in mind, as tax expert Magyar points out, that dealers also charge sales tax on the doc fee.
In the chart, you will see the estimated average doc fees dealers charge in each state, based on figures supplied by the thousands of dealers participating in Edmunds’ Price PromiseSM program. They have taken the data provided by those dealers, averaged it and rounded it up or down to the nearest $5. When you go car shopping, these estimates are a valuable guide to determine if a dealership is charging close to the average doc fee in your state.
Keep in mind that the doc fee is one of a number of factors affecting your shopping experience and your choice of a dealership. For example, if a salesperson is giving you especially good customer service, then a higher doc fee might be acceptable to you. If a dealership is giving you a very low purchase price, even after the higher doc fee, it would still be a net savings for you.