Used Car Taxes and Fees
One of the most attractive reasons for buying a used car is saving money; however, aside from the lower asking price, you'll still have to pay certain used car taxes and fees. Be prepared for these fees as you budget how much money you can actually spend on your used car.
Below are some of the most common fees you'll face when buying a used car at a dealership.
Understand that these are just a few of the common used car dealership fees. Take time to carefully read your sales contract and question any additional fees you don't understand or don't feel are necessary. (HINT: They aren't all warranted and many are negotiable.)
Also note that, in addition to these fees, you must pay your standard DMV-related fees (such as any title and registration fee) as well as any state-mandated sales tax.
The documentation fee, or “doc fee," is fairly straightforward. Simply put, it handles all the preparation related to filing all the paperwork, which includes your used car sales contract. Note that some states regulate documentation fees, while others don't.
Advertising fees can get tricky, but basically they cover the cost of advertising the manufacturer or dealership used to get you on the lot. Sometimes, manufacturers charge this fee; at this point, it's usually best to pay it. Other times, dealerships charge this fee; when this is the case, you might be able to negotiate your way out of it. Generally, you can find advertising fees attached to the invoice.
If you're trading in your current vehicle for a “new" used car, the dealership might try to charge a trade-in fee to make your trade-in vehicle more marketable. Because you're trading in a vehicle to help offset the cost of the “new" used vehicle (for example, as help with the down payment), why would you pay extra money for the dealership to accept the vehicle? Some experts agree it's best to dispute this fee.
Additionally, there are states that charge a vehicle tax on the difference between your “new" used car and your trade-in vehicle. Consider contacting your department of motor vehicles or related agency about this car tax before heading to the dealership.
Many used cars from dealerships (especially certified pre-owned vehicles) come with warranties, but your dealer might try to talk you into a service agreement (commonly referred to as an extended warranty), which goes above and beyond the basic warranty coverage.
However, unless it makes more financial sense for you to pay for this warranty upfront rather than deal with possible repairs and replacements as they arise, you probably don't need this coverage.
Credit Insurance Fees
Many buyers finance their vehicles, and credit insurance covers those loans in the event they become disabled or deceased before they can pay off their loans.
Credit insurance might sound attractive, but always check with your car insurance provider before paying this fee to avoid paying double coverage.
Vehicle History Report Fees
Used cars have had at least one other owner, meaning they have history.
Sometimes, used car dealerships will provide buyers with a vehicle history report (VHR)—a report that shows the entire history of the vehicle from lien and ownership history to accident history and maintenance records.
If your dealership doesn't provide this service, ordering a vehicle history report on your own is well worth the nominal fee.
Private Sale Fees
There are plenty of perks to buying a used car from a private party—one of which being that you can skip most of the fees listed above and save even more money.
However, there are a few costs you should consider paying.
For example, ordering a vehicle history report is just as important when you buy a used car from a private seller as it is when you work with a dealership.
Also, you'll want to hire a trusted mechanic to inspect the vehicle and make sure there aren't any problems you didn't notice with your untrained eye.
Of course, you must still handle all DMV-related fees and state-mandated sales taxes.
Generally, a dealership will help you deal with DMV-related fees such as your title transfer fee and registration fee; if you purchase your used car from a private seller, you (and sometimes the seller) must handle these transactions on your own.
(Of course, you can't forget your registration renewal fee, as it technically contributes to the overall cost of maintaining your used car.)
Used Car Sales Tax
Similar to how they can help you with DMV-related fees, dealerships can also help you figure out your used car sales tax; however, if you purchase your used car from a private party, you'll have to handle this step on your own.
Also similar to DMV-related fees, used car sales taxes vary by state; fortunately, we provide a Tax & Tags Calculator to help you determine your state's used car sales tax requirements.
(Don't see your state on the list? Don't worry. Your DMV or related state agency can walk you through the tax process.)
Car Insurance or Financial Responsibility
All states require car insurance or some form of financial responsibility, and this regular payment contributes to the overall cost of legally maintaining your vehicle—sometimes, significantly.
For example, if you purchase your used car outright, you might be able to get away with just basic liability coverage; on the other hand, if you financed your used vehicle, your state might require liability, comprehensive, and collision coverage until you've paid off the loan.
Visit our section on Car Insurance to find out your state's specific requirements as well as shop for the most affordable coverage rates online.