Identifying Hidden Car Buying Fees

By Randy Stern
Last Updated 07/21/2015

Do you know how much you are actually paying for an automobile?

Consumers usually look at the advertised price of a vehicle before seeing the rest of the costs associated it, but taxes, registration fees and dealer fees can all affect the bottom line. This is why it is important to know how much a vehicle will cost you be before signing the paperwork and getting the keys.

If you are a first-time car buyer, these are some fees you might encounter when buying a vehicle.

Sales Tax

Depending on where you live, the actual percentage of tax from the sale of a vehicle will vary. Sometimes it is as low as about 2 percent or as high as nearly 10 percent. Some states do not charge sales tax, while others may have a special tax rate for automobiles. Plus, municipal governments may charge an additional sales tax on top of what the state will charge. Look up your tax rate by consulting the dealer or the tax authority before factoring into your purchase budget.

License and Registration Fees

To be able to drive off the lot legally, your new car must be registered with your name on it. That means paying the licensing authority a set of fees toward license plates, registration and the necessary title paperwork. From that point on, it will be your responsibility to renew the registration of the vehicle annually. If you buy outside of your home state, check to see if the dealer will be able to register the vehicle where you live. Otherwise, you may need to plan accordingly to ensure that your vehicle is properly licensed and registered where you live.

Dealer Fees

For a dealership to maintain their documentation systems and administration, you will be asked to pay additional fees. The most common fee is a documentation fee, which you are paying the dealer to offer you the paperwork to sign off and store in their filing systems.

There could be more than one fee listed on your final bill of sale at the dealership, such as the prep fee charged to get the vehicle ready for sale and a destination or delivery charge, which covers the cost of the delivery process from the manufacturer. An advertising fee could also be included to cover the dealer's cost of selling the car outside the property.

Some of these may seem like additional fees that are added just for the sake of recouping costs. To be fair, ask the reason for each fee before you sign. If you do not agree to pay these fees, the deal might be terminated. However, some fees may be more negotiable than others, so there is a chance you can get the dealer to remove them based on your insistence that you truly want the vehicle, but at a cost that is fair for both parties involved.


There are two types of car insurance you may be asked to pay. One would be an insurance binder, which will provide temporary coverage to be put upon the vehicle when you drive off the lot. This sort of coverage is merely a placeholder until you are able to transfer or establish a new policy for your car. The other, known as gap insurance, comes into play when the value of your vehicle ends up being lower than the loan amount during the term of financing. In the event of an accident where your car is declared a total loss, gap insurance will protect you from having to pay out of pocket due to your vehicle's negative equity. Ask for the terms of these policies before you sign off of them.

Extended Warranty

If you intend on keeping the vehicle beyond the standard warranty terms, an extended warranty could become a good investment. If they are not offered by the manufacturer, it may be offered by a firm that is well-known and reputable. Extended warranties are also typically included with most certified pre-owned cars, and are usually backed by the manufacturer. If an extended warranty carrier is unfamiliar to you, do some research on that firm before adding the coverage to your vehicle.

There may be other additional fees that will show up on your bill of sale. A good rule of thumb is to read the bill of sale carefully and ask if you are unsure what a particular line item is. A dealer should be able to provide a reasonable answer or explanation for all the costs associated with your bill of sale.