When I think back on the times I went to go pick out a new car, I realize the "picking out a new car" part was quick and easy. In fact, often I pretty much knew what I wanted before I even drove onto the lot! But what seemed to take hours—and hours and hours—was all the pre-sale paperwork. There were forms to sign, loan rates to discuss, and pages and pages of "closing fees" to review. Today, I know a lot more about what to look for in all those pages of fees—here’s a primer you can use for your own next car purchase!
Mandatory closing fees
Along with every car purchase will come fees. The trick is to know which ones you must pay and which ones you can negotiate out of.
These are the mandatory fees—if you want the car, you have to pay them:
- Sales tax. While you will likely pay less sales tax when buying a used vehicle, paying sales tax itself is not a fee you can wiggle out of.
- Title and registration. The title and registration fee is what establishes you with the DMV as the new owner of the vehicle—so it’s mandatory.
- Documentation. The documentation fee (also sometimes called a "conveyance charge") is what the dealer or seller has to pay to verify you are a legitimate new owner. However, dealers will sometimes charge more than the state-required minimum (typically around $100), so be sure to research what your state's fee is before you agree to pay.
Questionable closing fees
These closing fees are definitely not mandatory….and as such are wide open for negotiation.
- Destination fee. Often also called a "delivery fee," this fee is what the dealer paid to have the vehicle delivered to the lot, where you discovered it and decided to buy it. While this can be a reasonable fee for a used vehicle, in the case of new vehicles, the dealer has a choice about whether or not to pass the fee on to you. Encourage them not to!
- Marketing and advertising fee. In the same way, the dealer incurs some costs to market their inventory, and they like to try to pass those costs on to you. But these are "costs of doing business" and should already be reflected in the retail price of the vehicle.
- "Hot seller" dealer markup. If you have your eye on a make and model that is selling like hot cakes, the dealer may slap a premium on top of the retail price—just because they can. Here, it just depends on how badly you want that particular car, because the dealer will have little (no) incentive to waive it.
- Extended warranty fee. Unless you absolutely want to, it’s not necessary to buy an extended warranty at the time you buy a new car. You can review different options as the time comes and choose the most cost-effective warranty.
Closing fee no-nos
Whatever you do, don't pay these fees—if need be, drive on over to a competing dealer and give them your business instead!
- Detailing fee. Sometimes called a "pinstriping fee," this silly fee will charge you a premium for a service you can find for much cheaper elsewhere.
- Paint sealant and fabric protectant. These fees will charge you up to double what you'd pay after-market for the same services.
- Rustproofing/weather resistant fee. Today's vehicles are already built to last under even severe weather conditions, so there should be no need to pay for more of the same.
- Dealer prep fee. This is a fee the dealer would like to charge you to do tiny tasks like removing the protective plastic covers and doing a basic cleaning. You can remove the covers yourself—and the car is new so it should already be clean—so just say no to this fee.
- Credit life or disability insurance. Dealers are happy to sell you extra insurance in the case that you pass or become disabled and are unable to make your loan payments. But for most of us, there is a good chance you already have this protection elsewhere—at the very least, you should research what you already have and also find the best prices before buying anything new!
- Anti-theft protection. An alarm system, VIN etching, anti-theft devices, and other protections may incur extra fees at the dealership. Unless you can negotiate your way down in price (to what you would pay after market) pass on these as well.