Beware of Taxes & Fees on Used Cars

Hands down, if you’re in the market for a car, buying it used is a great way to save money. However, it is still true that you’ll pay a pretty penny (well, okay… quite a few pennies) when it comes to taxes and fees on your used car. Be sure to budget accordingly.

Here are examples of fees to include in your budget:

Fees for the Vehicle History Report (VHR)

Your dealership may provide to you the vehicle history report for a used car s/he sells to you, which will list a history of the accidents, incidents, or crashes the car incurred from its previous owner(s). The dealership will charge you a fee for this report!

Even if the dealership doesn’t provide you with the VHR, we say it is well worth paying the relatively small fee to ensure that your used car has not been in any safety-compromising accidents and to ensure that the seller is being honest and giving you a fair deal.

Private Sale Fees

The best way to avoid the many, many fees charged by dealerships (listed below) is to buy from a private seller. However, you will still incur fees even buying a car from a private individual:

  • You should pay for a vehicle history report (unless the seller is willing to front this cost!)
  • You should hire a mechanic you trust to inspect the used vehicle to ensure there are no new mechanical errors
  • You will, of course, have to pay
    • State-mandated fees, such as
      • sales tax
    • DMV fees, such as:
      • Title transfer fee(s)
      • Registration fee(s), including registration renewal fee(s)

Car Insurance

Every state requires some form of financial responsibility, often in the form of car insurance. Your car insurance could add significantly to the cost of purchasing a used car, depending on many factors, such as:

  • Your state’s minimum coverage requirements
  • Your insurance needs and desires for adding optional coverage
  • Your age, driving history, and the number of vehicles you have insured, as well as which company you choose

Consider the cost of car insurance when budgeting for a used car!

Beware Dealership Fees!

Aside from the fees that all used car buyers must pay (sales tax, title, registration, etc.), dealerships also tack on their own set of fees. These fees should be itemized on your bill. Read through the list of fees carefully, and make sure you understand exactly why, for what, and how much you’re being charged. Often, these fees are hidden or unethical. YOU CAN NEGOTIATE to lower or even remove some of the dealership’s fees!!! Below is a (non-comprehensive) list of fees often charged by dealerships:

  • Advertising Fees
    • Fee to offset the cost of advertising for the dealership. When manufacturers charge this fee, you may need to pay it. When dealerships charge this fee, you should attempt to dispute it or negotiate it.
  • Documentation Fees
    • Some states regulate this fee, which is incurred for handling all the forms and paperwork related to the purchase of a used car.
  • Trade-in Fees
    • Many dealerships will unethically attempt to charge you a fee to trade-in your old car (even though the point of a trade-in is to save money on a down payment…). We recommend you dispute this fee. Also, beware of tax charged on the difference between the used car you’re purchasing and your trade-in vehicle. Talk to the DMV before paying this tax!
  • Warranty Fees
    • Most used cars come with basic warranties from the dealership, but you will often be hassled to buy an extended warranty which provides for terms not covered in the basic warranty. You will not likely need this extra warranty unless you EXPECT the car to need repairs that will be more expensive to pay for as they arise rather than paying up-front.
  • Credit Insurance Fees
    • This coverage covers loans the event that the payee becomes disabled or dies before they can pay off their loan. This type of coverage actually covers the dealership, not often the car buyer. Check to make sure that you are not in fact being charged for double coverage!

No matter what, read the fine print to see what kinds of fees you’re being charged and why! Attempt to negotiate everything.