Hidden Costs of Buying a Car

The total price you pay for a car is substantially higher than the price on the sticker, thanks to a variety of hidden fees. To protect your budget, be sure to factor in the following costs before you sign on the bottom line.

Interest on your loan

Most likely, you’ll be applying for a loan to finance your car purchase. Financial experts agree it’s a smart move to get your financing in order before you set foot in the dealership. Why? Just like the sticker price on a car isn’t the final tally on your car purchase, your car loan will exceed the amount you’re borrowing thanks to interest charges. According to U.S. News & World Report contributor Geoff Williams, interest charges can cost several thousand dollars. By shopping around ahead of time, you can secure a loan with the best possible rates.

Dealership fees

Although you may not have seen the car you intend to buy arriving at the dealership lot, you’ll still need to pay for the destination fee.

“Unfortunately, cars can’t drive themselves (yet) from the assembly line to the dealership. Even if they could, it costs a lot of fuel and man-hours to put them on the truck or cargo ship that gets them to you, and you should expect to pay for this privilege,” says The Balance writer Emily Delbridge.

State and local taxes

Most states require sales tax on purchases, including cars. Don’t forget to factor in extra money for local and state taxes, notes Delbridge.

“Sometimes, you’ll get a sales tax break if you trade in an old vehicle,” she adds.

Upsell charges

While you are finalizing the paperwork on your car purchase, the dealership’s financial officer will offer you a list of extra things or services you can buy. According to Consumer Reports writer Jon Linkov, most of these “add-ons” are not only costly, but completely unnecessary. Linkov recommends passing on the extended warranty offered by the dealership. Instead, put the money you’d spend on the warranty into an emergency fund. Although life and disability insurance policies can be added to your car loan, Linkov says your current life, car or home insurance company can offer less expensive rates. Road conditions, severe weather, and daily use are no match for the high-quality cars of today. Linkov advises saving money by saying no to fabric protection, paint sealing or rustproofing.

Vehicle Identification Number Etching is a valid security measure, but there’s no need to pay more than you should. You’ll spend less if you patronize your local mechanic’s shop, according to Delbridge. Do-it-yourself kits are available, too.

Ownership fees

To legally drive your car on the road, you’ll need to file and pay for the necessary paperwork with your state’s bureau of motor vehicles. Your state will determine how many fees you need to satisfy, but at minimum, you’ll need to pay for your car’s registration, plates and title. Delbridge writes that although you might spend time in line, you’ll save some money if you process these fees with the state yourself rather than through the car dealership.

A new car is an expensive purchase. Be sure hidden fees don’t blindside your automotive budget or the purchase of your dream car.

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