Fees, Taxes, and the Five-Finger Flip: What to Watch Out for When Buying a New Car
Finally, you have found a new car with a price that fits your budget. But don’t take out your checkbook yet. Each new car transaction has fees and taxes that can add a considerable amount to the total price. Does your budget take into account costs in excess of the MSRP?
Taxes, registration fees and document fees are the most common additional costs to expect from a dealer. There are also sneaky accusations to consider. We spoke to industry experts to find out more about the fees and taxes on new cars in order to anticipate and determine how they fit into individual budgets. Think carefully before signing on the dotted line.
Are car sales taxed?
Like any retail purchase, car sales are taxed. How they are taxed depends on where you live. The rate could be as simple as your state’s sales tax, or more granular: “The tax is determined by the residence of the consumer buying the car – not where they buy the car,” says Brian Maas, president of California New Automobile Dealers Association (CNCDA). Maas points out that factors such as the county, city and regional transportation district in which you live may change the fare.
In most states, you must register your car in the area where you reside. Therefore, you cannot register an out-of-state vehicle for a better tax rate.
Are you exchanging your old car? This could give you tax relief. “In some states, they will tax the difference between the new car and the takeover,” said Michael Schwartz, vice president and chief financial officer of Galpin Motors in Southern California. So if you trade in a vehicle worth $ 10,000 on a purchase of $ 50,000, you will only be taxed on $ 40,000. Check your local lists.
What are the registration fees?
Registration fees are paid to your state of residence. They cover the cost of the title, which serves as legal proof of ownership of your vehicle. License plates are also included (custom license plates are extra and are processed by the DMV, not by the dealer). Registration fees vary from state to state. Some charge a flat fee, some base it on the value or weight of the vehicle, and some use a combination of factors.
Most states require that your car be registered at the time of purchase; dealer computers enter your information directly into the state database. Maas says you will pay for this convenience, but expect an electronic vehicle registration fee. Nevertheless, Maas thinks, “Most customers pay it for the convenience of avoiding the hassle at DMV.”
Electric vehicles sometimes have special registration fees. Scott Kaufman, founding partner of California Lemon Law Attorneys, said, “Many states have changed their registration fee formats because electric vehicles do not pay gas tax. They have to get a tax to pay the road somewhere, so they charge a flat fee for electric cars, usually a few hundred dollars per car. “
Some states charge additional registration fees on heavy vehicles. These weight charges mainly apply to large trucks or utility vehicles. The reason is that since these vehicles weigh more, they have a greater impact on the roads, and the weight charges help to offset these infrastructure costs.
Registration fees can add up to hundreds of dollars or more for expensive cars. You may not need to pay them all at the same time. According to Maas, “For most consumers who finance the purchase, all of these fees and taxes can also be funded. If you buy a vehicle over several years of financing, fees and taxes can be included in the payments. “
Do I have to pay document fees?
At the dealership, you can’t just pour money and go home in your new whip. You will only receive the keys after completing the documents associated with the sale. Some of these documents are mandated by the government, others come from the dealer and relate to your specific transaction. Either way, expect document fees (often called doc fees) when you buy or rent a car.
“Each state requires dealers to process certain documents to complete the sale, so each state authorizes dealers to charge for document processing,” says Maas. Documentation fees vary from state to state. Maas points to a CNCDA study which found that the national average is $ 349. He notes how “in some states these fees are not regulated – there is no cap. Some dealers charge $ 700 or $ 800 for document processing. Other states, however, impose a maximum; in California, it’s $ 85.
Kaufman has a skeptical view of doc fees. Noting the huge discrepancy in documentation costs nationwide, he says, “There is nothing that has been done to earn these costs – dealers are charging them simply because they can … It’s not based on nothing more than if they can squeeze you. “
Schwartz replies this claim. “The document preparation work for a client takes between an hour and two hours. We have to pay someone for this and for the forms required for the sale. We have to buy all these forms, and the specialized computers and printers we use to prepare the documents, and these are not cheap. “Documentation fees allow dealers to recover these costs.
In all cases, the doc fees are not compulsory and they are negotiable. If a reseller tries to hit you with exorbitant document charges, you can try to denounce them – and if they don’t move, you have the right to withdraw from the deal.
Are destination fees negotiable?
It costs money to get a car from where it was built for a concession lot. This is represented by the destination costs, also called transport, delivery or shipping costs. They are defined by the manufacturer and not by the dealer. Destination charges are negotiable, but since dealers have to pay the factory to ship cars to their lots, this could be a good deal.
You will see the destination charges shown on the window sticker, but advertisements sometimes omit these costs to imply a lower price. As such, do your research to make sure that the destination fee is part of the price; MotorTrend always includes destination charges in its Buying Guide.
What is the dealer markup added?
How much would you pay extra for the car of your dreams? If you’re looking for something cool or rare, don’t be surprised to see a private label on the window sticker. Although it is not a royalty or tax per se, it is a charge added by the concessionaire to benefit from market demand.
The Honda Civic is a perfect example for markups. You can probably find an offer below the sticker price on most trim levels, but for a hot variant like the Civic Type R, an increase is almost to be expected.
Maas points out that dealers can charge what they want for a car. “The laws of supply and demand control this. If a client does not want to pay these fees, they can negotiate. But if there are only two or three of these cars, they won’t have much leverage. They have to decide how much they want it. “
Schwartz recognizes the profit potential of dealer markups, but believes there is a fair way to apply them. At its dealerships, “We are not looking to be greedy, we want to build long-term customers. So, if there is a hot car that orders an increase, we would prefer to add equipment to the vehicle so that there is real value. Aftermarket wheels or other equipment improves the vehicle and the value for the customer, so they don’t just pay for air. “
Yet Schwartz says, “There are unique vehicles that are very rare, in high demand, to which we will sometimes make adjustments based on market requirements.” Being passionate about a specific car can be expensive.
What are the tire costs?
Some states impose fees for each tire included on a new car. Obviously, the minimum would be four tires, but vehicles with a spare part are charged for five tires. Maas says the tire costs go to an environmental impact fund to “mitigate the microplastics that come off tires on the road.” Tire costs do not exceed a few dollars, so they will not add a significant amount to the total price of your new car.
Fees and taxes to watch
Car dealers are known to introduce additional fees into a new car transaction. Taxes, doc fees and registration fees are to be expected, but beware of anything else.
Kaufman remembers his personal experience with incidentals. “I have had a few dealers try to charge me advertising fees and say it is not negotiable.” Granted, it costs the dealer to advertise, but it’s not something that needs to be passed on to the customer – it’s just a cost to do business, and the advertising costs are definitely negotiable.
Kaufman also advises to consider a standard factory warranty for a new vehicle against any extended service contract, sometimes mistakenly called extended warranties, offered by the dealer. He cautioned against the possibility of overlap between the two. “Suppose the basic warranty is three years, or 36,000 miles. The warranty extension, which is the nomenclature but is not correct, will cover all of these first three years, and another number of years depending on what you buy. But the first three years are worth nothing because you already have that from the manufacturer. So there is just a scam.
“If you don’t plan to keep the car forever, it’s a bad idea to buy an extended service contract. A lot of people will tell you to buy it anyway, but if you expect this car has real problems in the first few years, you buy the wrong car, “says Kaufman.
Anti-theft engraving, vehicle tracking and other security measures also deserve a closer look. You may be able to find the same services elsewhere at a much lower price, with no dealer markup.
Ready to sign?
Buying a new car is an exciting prospect, but don’t rush it. Otherwise, you could pay more than what you negotiated. Always take the time to carefully review each document and ask your dealer to clarify any questions.
Otherwise, you could fall victim to tactics like the “five finger flip”. This is what Kaufman calls it when dealerships “hold their hands over the documents and say, ‘Sign here, go here’ without ever giving you the opportunity to read it. They just ask you to sign it. And you’re happy to sign quickly and get out of there – you don’t want to worry about the legalities. You just want to sign and leave. It is only later that you find out that you have been scammed.
Fortunately, many states have regulations that limit these gambits. For example, in California, all fees and charges must be shown separately. “Something to watch out for is that all fees and taxes are properly itemized on the final contract so that you can review them.” Said Schwartz. Unless the dealer incorrectly tires one load with another, you will see them all listed.
“Consumers can be exhausted from the sales process,” says Maas, “but the goal of the process is to provide as much information as possible about the transaction and what you are paying for. The information is there, just Look for it. And don’t hesitate to ask the dealer about it; they should explain it to you. “
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