Which Dealer Fees Are Legitimate?
There are certainly some legitimate fees that dealers have no control over, but some try to pad their profits by simply making up fees - kind of like the "convenience fee" charged by some companies.
Let's first take a look at all the legitimate fees:
Tax, Title, LicenseAll dealerships charge tax, title, and license fees (also referred to as registration fees). These go straight to the government and will vary depending on your state and city. The title and license fees go toward securing your title (proof of ownership), registering for a license plate and getting you setup with temporary tags. The dealership does not keep any of these fees, but rather pays them directly to the state, saving you a trip to the DMV.
Dealer Documentation FeeAlso called the "Doc Fee", this is the amount a dealer charges to complete all the paperwork related to the sale of a vehicle, including the sales contracts, filings with the DMV, and any other paperwork. Some states put a limit to how much a dealer can charge, but others have no cap - resulting in each dealer charging a different amount. Doc fees typically range between $55 and $700 and are usually non-negotiable. Here's a list of average doc fees charged in each state.
Destination FeeThis is a shipping fee charged by the manufacturer to transport the vehicle from the factory to the dealer lot. These fees are usually around $700 to $1,000, and all dealers pass the cost on to the consumer. The Destination fee is always listed on the MSRP window sticker and is also included in the vehicle invoice. Make sure the dealer includes the destination fee when they quote you a price on a vehicle. For example, if a dealer quotes you "$500 under invoice", make sure the price includes the destination fee.
Regional Ad FeesSome dealerships charge a regional advertising fee, which although it sounds fishy, is actually a legitimate fee. It may not seem fair, but certain manufacturers add fees to each vehicle to help pay for regional advertising and promotions. The fees usually range between $100 and $400 and a couple of examples are TDA (Toyota Dealer Advertising Fee) and MACO (Market Area Co-op Advertising Fee). One important note: In order for these fees to be legitimate, they MUST BE listed on the vehicle invoice. If a dealer tries to tack on an advertising fee not listed on the invoice, then they are trying to pad their profits.
Other FeesYou may see other fees such as "Admin Fees" or "Fuel Charge" fees. These are legitimate fees ONLY if they are listed in the manufacturer invoice.
From my experience, there weren't many dealers that tried to pass on fake fees, but you still need to keep an eye out for them:
Dealer Prep FeeThis is a fee, usually ranging between $100 and $400, that a dealer will try to charge for preparing the vehicle for sale. It's a ridiculous attempt at making extra profit because vehicle preparation is simply a part of doing business. Get the dealer to drop this fake fee before agreeing to purchase.
Additional FeesDealers use all kinds of official looking acronyms to pad their profits with fake fees. The most brazen are the ADM Fees (Additional Dealer Markup) - simply an additional profit for the dealer. If there are any fees NOT listed in the official manufacturer invoice, this is more than likely a made-up fee that you should refuse to pay.
My Recommendation for Car ShoppersTrueCar No-Haggle, CarsDirect, and NADAGuides are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid