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Buying a New Car? Account for These Hidden Costs

Jun 30, 2017 3 min read Kate Ashford


Buying a new vehicle can be stressful. For most people, it’s a large purchase and a big commitment over a number of years. Consider that the average transaction price for light vehicles in the U.S. was more than $33,000 in 2016, according to Kelley Blue Book

But shelling out for a new vehicle isn’t just about the purchase price—it’s about all the costs associated with buying a new car, and there are more fees than you might expect. Here are a few expenses to factor in, both at the dealership and after you’ve driven your new car off the lot. 

The documentation fee

This is a fee a dealership charges to process your paperwork, and, while in some states there’s a limit on this fee, in many others there’s not. 

“We’ve heard of some states that were charging $900, so this can be very jarring,” says Ronald Montoya, senior consumer advice editor at car site Edmunds.com. Even if this fee seems outrageous, Montoya recommends negotiating harder on the price of the car versus haggling over this line item. 

“This is something that’s just commonly accepted as a part of the business,” he says. 

Dealer add-ons

Because the profit margin on some vehicles is so low, some dealers will add hundreds of dollars of extra options to a vehicle to drive up the price. For instance, a dealer might add nitrogen to the tires, a LoJack recovery system or wheel locks, all of which will cost extra. 

You’re then in the position of trying to negotiate down the extras before you even get to the actual price of the car. 

“You’re not obligated to buy these things if you don’t want them, but some [dealers] are going to give you a hard time about it,” Montoya says. 

If you find that you’re getting a lot of pushback on add-ons, you may be better off finding another dealer who won’t be as prone to piling on the extras. 

Sales tax and registration

This shouldn’t be a surprise, but sometimes people don’t realize how much the sales tax, fees and registration will add to the bottom line—generally about 10% overall. This includes local sales taxes and any fees for license plates, title and registration for the car, which are required. 

“I always recommend that people get the ‘out-the-door’ figure,” Montoya says. “That’s what the price of the vehicle is going to look like after all the fees and taxes.” 

Financing fees

Negotiating for a car when you can’t pay the full amount in cash means you might also be negotiating for the best financing deal, which can complicate things. Focusing on interest rates and monthly payments can cloud the bigger picture—that is, what you’re actually paying in the end. 

For the best haggling power, it’s a good idea to get pre-approved for a car loan at a bank, credit union or online lender before you go car shopping. That way, you already know you’ve gotten the best interest rate you can find, so you’re just looking to get a good deal on the car. 


This is usually an expense for the life of the car, so it should factor into your decision. Montoya recently changed his mind on a car purchase when he saw what the insurance bill was going to be. 

“The monthly payment was fine, but once I looked at the insurance, it wasn’t enough to justify the purchase of a luxury vehicle for me,” he says. “That’s something to know beforehand. Imagine that all of a sudden you’re paying $100 extra a month in insurance.” 


This is just something to keep in mind as you shop for cars: The more expensive or unusual the car is, the higher the maintenance bills will be. 

“Even if you don’t plan to get it serviced at the dealership, the parts themselves will cost more,” Montoya says.


If you’re buying a luxury car, it may require premium gasoline. “That’s something extra that people hadn’t considered,” Montoya says. Additionally, a larger vehicle such as an SUV will require more gas in general, so make sure you’ve done the math on that. 

A comparison

Sometimes hidden costs aren't about surprise fees at the dealership but about ongoing costs over time. Two cars with similar sticker prices, for instance, may have very different price tags over the life of ownership, due to differences in fuel costs, maintenance and insurance, among other things. 

In the following example, Car 2 has a $3,500 lower cash value than Car 1, but the cost to own it is actually $2,600 higher over five years, according to Edmund.com's True Cost to Own Calculator.


The Cost of Owning a Car
The Car Car 1 Car 2
Total Cash Price $32,375 $28,842
True Cost to Own* $35,761 $38,381
Depreciation $17,538 $15,367
Taxes & Fees $2,708 $2,342
Financing $3,447 $3,071
Fuel $3,684 $8,443
Insurance $4,263 $4,081
Maintenance $3,503 $4,175
Repairs $618 $902
Total $35,761 $38,381

*Over five years
Source: Edmunds True Cost to Own Calculator


Bottom Line

It’s easy to get frazzled when you’re dealing with a variety of unexpected fees and an aggressive salesperson. But doing some research beforehand can help, as can getting financing before you visit the dealership. Also, you can always ask the dealer for the total breakdown of fees you’re being charged. “That way, there won’t be any surprises,” says Montoya. 


Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, Real Simple and Parents, among others.


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