Additional Fees That Are In Every Vehicle Purchase: What You Need to Know About the Added Cost

Jul 26, 2018

Keep additional fees in mind

One minute you thought you knew what your car was going to cost. Then there were all these fees added on and you didn’t know what happened to the final price. Don’t let this be you! Know what to expect before you sign the dotted line so there are no surprises. The hidden vehicle purchasing fees that are in every purchase push up the final cost. This is what you need to know about the added cost.

There are four categories of items that will contribute to hidden vehicle purchasing fees. This includes the down payment, fees, taxes, and registration.

Additional costs:

Down payment
Fees
Taxes
Registration

Down payment

Typically when we think about purchasing a car, we think about what the monthly payment will be; but the down payment can’t be overlooked.

A down payment should be 10% of the purchase price of a used car, and 20% of the purchase price of a new vehicle. Your trade-in or rebate can be counted toward the down payment as well.

The percentage needed for the down payment differs between new and used vehicles because depreciation occurs most rapidly when a car is brand new. The down payment is assurance to the bank that, if you don’t pay, they won’t lose money because the car will retain a higher value than your down payment.

TIP: Just because 10-20% is required, if you can afford it put down a greater down payment do it! You will save on interest and lower your monthly payments.

TIP: On the other hand, if you’re leasing don’t put down a greater “required initial payment” or “cash due at signing” than what is required. One of the advantages of leasing is putting less money down – so take advantage of it!

For new-car leases rebates go to the lender, not the lessee, and do not serve as cash due at signing. So, why pay attention to lease rebates? A rebate for buyers can indicate a favorable lease deal. The rebate lowers the price of the vehicle, and that means savings could very well be passed onto you in the form of lower monthly payments.

If you don’t have 10-20% for a down payment, there are a couple of advisable options: A trade-in or rebate.

If you have an old vehicle you’re trading in, the value of that vehicle will be subtracted from the required down payment. If you’re purchasing a vehicle with a rebate, the amount of the rebate will reduce how much you owe for the down payment.

In sum: Save 10-20% of the vehicle’s cost, trade-in your current vehicle, and/or select a vehicle with a rebate to reduce the down payment.

Save 10-20% of the vehicle’s cost
Trade-in your current vehicle
Select a vehicle with a rebate

Fees

Documentation fees or “doc fees” are a hidden vehicle purchasing fee that involves the cost of doing the paperwork when you make a car purchase. This includes preparing and filing paperwork for the the sales contract and title.

Most dealerships charge between $50 to $500 for documentation fees. The lowest average is $75 in New York; the highest is in Florida at $670.

Some states have a maximum limit a dealer is allowed to charge.

Doc fees are limited by Michigan State law to $190 or 5% of vehicle price, whichever is less. The average doc fee in Michigan is $165.

Note that doc fees are also taxed. Also note that doc fees and sales taxes change frequently; so, make sure you know the latest figures.

Advertising fees are the fee manufacturers require dealers to pay for in regional advertising. This typically runs between $250 to $400.

Taxes

Another hidden vehicle purchasing fee that should be obvious, but is still often overlooked is taxes on the vehicle purchase. Each state adds a tax, as do some counties and cities. While we’re all used to paying sales tax, the only thing more expensive than a car that most of us buy is a house. You might not blink when you buy a TV, but you quickly realize that taxes add up when you buy a car!

Be prepared for this. Many people forget about taxes and feel like they’ve been bait and switched. Keep taxes in mind when you’re figuring out how much you can spend on a car.

While sales tax on a car can vary from a state’s regular sales tax, in Michigan it’s the same. In Michigan, the maximum sales tax you will pay is 6%.

Trade-ins and rebates are also taxed in Michigan. That means that the value that your trade-in knocked off the cost of your new vehicle is taxed and the full amount of the car purchase price is taxed rather than the purchase price minus the rebate.

Registration

The dealer will handle title transfers and car registration. This is nice because it saves you a trip to the Department of Motor Vehicles (DMV), which we all know can be a long wait. It almost makes you want to buy a new car every time you need to get a new license plate! Well, almost!

The vehicle registration fee is what the state charges to register a new car, assign it a title for legal proof of ownership, and provide license plates.

How much will it cost? Put simply, the more expensive the car, the higher the registration fee. Or, if the vehicle is a 1983 model or older, the more the car weighs the higher the car registration cost.

While having the dealer take care of registering your car is no doubt a convenience, it creates a hidden vehicle purchasing fee that you should be aware of.

The average DMV fee in Michigan for a new vehicle is $230.

In conclusion

There are a number of hidden vehicle purchasing fees that create added costs when buying a car and it can be difficult to calculate everything. Allot a little extra money assuming there will be extra costs so when it’s totaled up you are prepared.

Contact us

In the market for a new or “new-to-you” car? We’re transparent in our fees because we believe in giving everyone a fair shake. Stop by Thelen and take a test drive with us today!

Links:

https://www.autotrader.com/car-shopping/whats-right-down-payment-car-loan-or-lease-212702

https://www.edmunds.com/car-buying/what-fees-should-you-pay.html

https://www.autocheatsheet.com/new-car/what-new-car-dealer-fees-should-you-pay.html

https://www.dmv.org/buy-sell/new-cars/new-car-taxes-fees.php

https://www.michigan.gov/sos/0,4670,7-127-1585-75432–,00.html

Tags: fees, hidden, purchasing, vehicle
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