Buying a new car is fun and exciting but it’s important to consider the hidden costs of buying a new car. Sticker price is only a portion of the actual cost of ownership. Many of the fees are unnecessary, such as Dealer Prep and Dealer Holdback Allowance, which are added on by the dealer in order for them to make a larger profit on the sale. While other fees, for instance, Destination Charges, are legitimate and part of new car buying costs.
Dealer Prep fees are nothing more than pure profit for the dealer and can be several hundred dollars. Dealer Prep charges are covered by the car manufacturer and included on the windows sticker as part of the MSRP. Dealer installed options, which can include paint and fabric sealant and window tinting, are another cost to consider when buying a new car. Dealer Holdback Allowance is an invisible 2% to 3% fee sometimes added to the car price to allow the dealer to sell a new car below invoice price and still make a profit. Additional Dealer Markup sometimes appears on the sticker next to the MSRP and is an artificial fee added by the dealer as a buffer for negotiation so the dealer can make a larger profit.
Some foreign car manufacturers charge for options installed at the port such as rubberized undercoating. These fees, called Port Prep or Port Installed Options Fees, can run as high as $600 depending on the car manufacturer. Destination Charges are what the manufacturer charges to transport the car from the factory or port and is generally several hundred dollars. Advertising fees are dealer added to the price of a new car and can be as high as $1,000, however, buying online generally eliminates Advertising fees.
Finance fees vary and can add a substantial amount to the monthly payment of a new car. Many car manufacturers offer 0% financing incentives while most banks will charge an interest rate. Sales tax ranges from 2% to 7.25% depending on the state and can add a substantial amount to the car price. Documentation Fees are what the dealer charges to prepare and file the title, license and registration paperwork. It may be less expensive to file all the necessary paperwork yourself.
Other costs to consider are car insurance which tends to go up for a new car and maintenance which will vary by make and model. Fuel cost may also increase for cars that require premium fuel or one that gets lower gas mileage. An extended warranty, while an additional expense, is almost always a well worthwhile investment in the long run.
7 Hidden Costs of Buying a New Car
- Dealer and Manufacturer Fees
- Car Insurance
- Sales Tax
- License and Registration Fees
- Fuel Costs
- Extended Warranty
Hidden costs can be hard to decipher but new car buying doesn’t have to be difficult or intimidating. With a little online research it is quick and easy to find the actual cost of a new car without the hidden costs. There are great online websites such as CarsDirect that make it simple to find and buy a new car at the best possible price with no hassle.