Auto loans include fees that may be negotiable

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Ask a Lender
April 10, 2017 | Updated September 26, 2017


Key Points

Fees and charges associated with auto loans

  • Fees like documentation, GAP insurance and sales tax are usually nonnegotiable.
  • Fees for advertising, trade-ins and vehicle history reports are usually avoidable.
  • Extended warranties and VIN etching are among the items that are always optional.

You’re at a car dealership and have your eyes on your dream vehicle. Look at pricing details, and see that the Manufacturers Suggested Retail Price (MSRP) is $20,000, but there’s a good chance you’ll pay considerably more, however.

There are many fine-print details that go into purchasing a vehicle, particularly when you’re obtaining an auto loan. You negotiate with a salesman, but there are a host of other people working for the dealership who get paid. A lengthy list of fees usually accompanies your purchase agreement, often pushing the total amount you’ll pay thousands of dollars above that sticker price.

It’s important to know you have options other than the dealership’s in-house lender. Many of the fees they charge are avoidable if you understand their purpose, but some are typically set in stone because they’re passed on to the dealer by other entities.

Nonnegotiable fees

Documentation fees — also known as processing fees or conveyance charges —cover the in-house paperwork process, including title, registration and licensing. The fee can be as high as $400, according to U.S. News and World Report.

Destination fees, or delivery charges, are the cost of shipping the vehicle from the factory to the dealership. The destination fee is an itemized, government-mandated cost, listed along with things like tax, licensing fees, and the vehicle’s standard and optional features, according to Kelley Blue Book.

Guaranteed Asset Protection (GAP) insurance is something you won’t need to worry about if you’re purchasing a vehicle, but you will if you’re leasing, Consumer Reports states. If your vehicle is totaled or stolen, GAP insurance covers the difference between the payments that are left on the lease and the residual value at the end of the agreement.

Depending on the local jurisdiction, sales tax will typically run 6 percent to 10 percent of the vehicle’s purchase price, 2016 data from Tax Foundation shows. Some states base the tax on the difference between the new vehicle and a trade-in, though others don’t, says Consumer Reports. Unless the dealer is running a promotion that offers to pay sales tax, you’re stuck with it.

Lastly, your state’s department of motor vehicles will charge the dealer a title and registration fee for establishing ownership of the vehicle and obtaining temporary tags. It typically adds 1 percent to 3 percent to the vehicle’s price tag, according to Consumer Reports.

Negotiable fees

Manufacturers or dealerships advertise in a variety of ways to get prospective buyers on their lots, and they’ll charge an advertising fee to recoup the expense. If it’s a manufacturer-initiated fee, there might not be a way around paying, but a dealership-initiated charge is usually fair game, says, an independent research company.

Dealers usually include a markup fee of 2 percent to 5 percent above the MSRP to ensure they make a profit. This is known as the sticker price. Some of the most popular vehicles include an additional markup. Consumer Reports says if the model isn’t in high demand, it’s possible to pay less than the sticker price.

Some dealers advertise a guaranteed minimum amount for trade-in vehicles, according to CarsDirect, an online vehicle resource. If your trade-in is worth less than the minimum, however, you’ll be asked to pay the difference out of pocket, what’s known as a trade-in fee.

Vehicle history fees can be a useful expense as the dealer will provide a detailed report for a used vehicle, including maintenance records and any previous collisions. But, states, you can usually save money by finding these reports online.

Unnecessary fees

There are some fees that are always optional but may be included on a purchase agreement. This includes fabric and paint protection. Dealers offer these preventive plans for a vehicle’s interior and exterior surfaces, and they’ll probably charge a couple hundred bucks a pop.

Dealers will charge a preparation fee to remove the coatings and coverings that protect the vehicle during shipment. Thing is, manufacturers already reimburse them for this service, Consumer Reports says.

Like vehicle history fees, VIN etching can be a useful expense that permanently etches your vehicle identification number into the glass, helping trace the vehicle in case of theft. But you’ll likely pay a dealer far more than a do-it-yourself kit costs, a 2016 AARP report says. Some states require dealers to offer the service, but it’s always an optional purchase, Consumer Reports says.

Many used-car purchases include some type of warranty protection fee, says, but dealers may try to negotiate an extended warranty that goes beyond the basic agreement. There’s no purchase requirement and if you wish to have one, Consumer Reports advises shopping around and buying later from a third party.

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