The Hidden Costs of Buying a New Car

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Extended warranties, dealer installed options, and other expenses you might not know about — but should — when it comes to buying a new car

Congratulations!  You found the car of your dreams and you're ready to sign on the dotted line.  But wait.  In the contract, you notice a variety of additional fees you weren't prepared to pay.  In this section, we help you sort through the hidden costs of buying a new car, including extended warranties, dealer installed options, destination charges and more. 

Extended Warranties

If you're buying a new car, chances are it's already covered under a manufacturer's warranty which is included in the price of the vehicle.  If you're leasing and get a new car every two to three years, the manufacturer's warranty should be all the coverage you need.  When it comes to determining whether or not you need an extended warranty, keep in mind many of today's manufacturers offer comprehensive plans, with some programs lasting 10 years/100,000 miles.  As a general rule, it makes sense to purchase an extended warranty after your car hits 100,000 miles. This is usually the time when older cars begin to experience mechanical problems and are no longer covered by most warranty plans. 

Dealer Installed Options

Be sure to review your sales contract carefully to ensure you agree with and have requested any additional costs for which you're being charged.  If you notice expenses for things you didn't request, such as rust proofing or fabric protection, be sure to discuss these items with your dealer.  As its name implies, dealer installed options on your new car are optional expenses. Simply put, it's up to you to decide whether you want or need them.

Destination Charges

A destination charge is the cost associated with delivering a car to a dealer, paid for by the dealer to the manufacturer.  Since this is a fixed, non-negotiable fee, it's passed along to the new car buyer by inclusion in the sales price of the car. Destination charges can vary depending on the car and the manufacturer, so it's important to research new car pricing at LendingTree to determine what your car's destination charge is.  Review your sales contract to ensure the destination charge is accurately reflected.

Dealer Preparation Fees

Typically, dealer preparation fees are the costs associated with prepping a car for sale.  This process may include interior and exterior detailing and adding fluids.  Many times, this fee can be negotiated to a lower rate or removed completely, depending on the dealer.  Before you buy, ask your retailer if they charge preparation fees, how much they charge and what those charges entail.

Vehicle Registration Fees

When you buy a new car, your state's Department of Motor Vehicles (DMV) charges for things such as proof of ownership documentation and license plate fees.   Dealers handle the facilitation of registration paperwork for you, however, you're responsible for the associated fees.  It's best to know what these fees are up front, so you can factor them into your budget.

Advertising Fees

As a general rule, if advertising costs are included in the invoice price of the car, chances are these are legitimate fees the dealer has paid to the manufacturer to help offset the costs involved with marketing and advertising a car for sale.  However, if advertising fees are included in the sales contract but not on the car's invoice, be sure to ask the dealer for a breakdown of what those charges are and why they're being passed on to you.  You may be able to negotiate a lower a rate or have them removed completely from the sales price of the new car.  

Sales Tax

If you're not prepared to pay sales tax on the purchase of a new car, you could be taken by surprise at how expensive it can be.  For example, if your new car costs $30,000 and your state charges eight percent tax, you're on the hook for $2,400 in sales tax.  For people on a budget, $2,400 in sales tax alone could break the bank.  To be prepared, know what your state's sales tax rate is and be sure to factor this amount into your overall budget.

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