What is the dealer document fee and should you pay it?
This is part of our Car Buyer’s Glossary series breaking down all the terms you need to know if you’re buying a new or used car from a dealership.
Timing is everything so, when it comes to car buying, dealership document fees are like the late party-guest who suddenly arrives while you’re saying final goodbyes and putting leftovers in the fridge. To put it mildly, they’re an annoying but common part of most car transactions. For car buyers who don’t expect them, however, they can seem like a blatant rip-off.
What, exactly, is a document fee?
First off, let’s get the wording down, because a document fee can go by many different names. Sometimes they’re called a processing or paperwork fees, or they might simply be referred to as “doc fees.” No matter the label, they all mean the same thing.
This fee covers the back-office work a dealership does with any car purchase. Basically, you’re paying for paperwork. This can include vehicle registration, license plates, checking a trade-in value, making certain a trade-in is free from recalls, and other administrative functions that come with buying or leasing a car.
While they sound legitimate, these charges have bad habit of showing up at the tail-end of the transaction, which is basically the worst possible time. Typically ranging from $100 to $400, these seemingly out-of-the-blue charges cause many car shoppers to think they’re being scammed at the last moment.
So, should you have to pay for these charges in the first place?
The short answer is, yes. The additional bad news is that the vast majority of states don’t regulate document fees. Several do, and cap these fees, so be sure to ask about this. Otherwise, a dealership is left to determine what’s appropriate, then pass this cost onto the consumer. After all, no one’s forcing you to buy the car from this particular dealership. You could, perhaps, find a dealership that charges a less exorbitant fee. But there’s an end run around the document fee entirely that savvy car buyers, like you, can take advantage of.
For one, now that you’ve read this sage piece of advice and are prepared to see a document fee on the final sales agreement, you won’t be caught off guard. And more importantly, the only thing that really matters is the bottom line: the price of the car inclusive of all fees, taxes, and surcharges. If you’re prepared for the document fee to add a few hundred dollars to the bottom line, you can account for that in your negotiation strategy. It really doesn’t matter if one particular fee seems unreasonable if you’ve negotiated a fair bottom line price.
How do I know what all the fees and taxes will add to the bottom line?
It’s not that easy to calculate what all these fees and taxes will be from home to the penny, but it’s possible to get a sense of what you might expect. Taxes are calculated as a percentage of the sales price. Registration fees might be calculated by weight. It’s too much to get into in this article, but you can call or speak to the dealer where the car you’re interested in is, and ask about what the fees will probably be using the car’s MSRP as a starting point. There’s no good reason why a dealer would refuse to run those numbers for you.
And remember, you can negotiate about more than just raw dollar figures. If the dealer won’t budge on price, or negotiable fees, try to get an accessory or option thrown in. After all, why expend all your energy researching cars and comparing costs, only to let a few hundred dollars drive you crazy once the deal is at the finish line?
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