New Car Taxes and Fees
Oftentimes, a car buyer negotiates what they feel is an amazing car price, only to get in the salesperson's office and find they're being charged more than the original agreement. Generally, this is due to additional fees and taxes.
Always ask the salesperson to explain these extra costs before you sign the contract. Keep reading for more information how these taxes and fees add up.
Some of the most common dealership fees include fees and costs for:
- The documentation fee, or “doc fee," basically covers the preparation and filing of all related paperwork, including the sales contract. Some states regulate doc fees; others don't.
- Sometimes, advertising fees are attached to the invoice price—and these fees can get tricky. For example, sometimes the manufacturer adds the advertising fee; in this case, it's probably best to pay it. Other times, dealerships add an advertising fee to offset advertising and other costs; in this case, it might be best to further negotiate.
- The dealership might charge a fee to make your trade-in vehicle marketable. Some experts advise disputing this fee.
- Furthermore, some states charge a sales tax only on the difference between your new car price and your old car's value.
- Most likely, the dealer will ask you to purchase a service protection plan (commonly called an extended warranty). This protection goes beyond the date or mileage when the manufacturer's warranty expires.
- Credit insurance:
- Simply put, credit insurance covers the loan in the event you become disabled or pass away before the loan is paid off. To date, credit insurance is not required by law, so if you're interested in this insurance, check with your current insurance provider to make sure you don't end up paying double coverage.
Keep in mind, these are just some of the most common dealership fees. Always read the sales contract carefully and ask questions about any costs or fees you don't understand—or feel aren't warranted.
As mentioned above, generally dealerships handle DMV-related fees -- such as title transfers and registration -- for you (until it's time to renew your registration, of course).
Car Sales Tax
Be prepared to pay a state car sales tax; this percentage depends on your state. Note that some areas also have county, city, and even school district car taxes, too. Your dealer will walk you through this process.
Unfortunately, dealership and/or manufacturer rebates and other incentives might not help you when it comes to lowering the cost associated with car taxes; some states charge the car tax on the full vehicle price before any rebates are applied.
Some states provide online car tax calculators or charts to help you get an idea of how much you'll pay. Refer to our Tax & Tags Calculator to see if your state provides this service.
NOTE: Many states require yearly property taxes on vehicles in order to renew your registration. For information specific to your state, contact your county clerk's or assessor's office.
Car Insurance or Financial Responsibility
Once you've paid your dealership fees, DMV fees, and all related car taxes, it's time to purchase car insurance or meet your state's financial responsibility laws.
Not all owners take this cost into consideration—and depending on your state, it can significantly increase the total amount you pay for your vehicle. For example, older model used vehicles might require only the state's minimum liability coverage; on the flip side, new cars might need both liability insurance and comprehensive and collision coverage.
Visit our section on Car Insurance to find your state's requirements and even shop for the best car insurance rates online.