Buying a car is one of the most expensive financial commitments you’ll make. Considering the magnitude of this purchase, it’s essential that you understand all the costs you’re being charged before signing any paperwork. Unfortunately, many car buyers have raised concerns about potential hidden fees that dealerships may add to the advertised price, which can significantly increase the overall cost of a vehicle.
Let’s take a look at these “hidden fees” that you should be aware of to ensure a fair and transparent transaction.
Key Points
- Dealerships typically have multiple extra fees that are added on top of a vehicle’s advertised price.
- Many of these fees are legitimate, while some may be added as a tactic to boost dealership profits.
- Legitimate dealerships should be transparent about all fees charged upfront.
- Get familiar with all potential hidden fees and review your purchase contract to make sure all fees are clearly listed before you commit to the deal.
Types Of Fees Often Charged By Dealerships
The fees that dealerships tack onto the purchase price of a vehicle you’re buying include:
Freight Charges
These fees are charged by the manufacturer to transport a vehicle from the factory to a dealership. This fee is mandatory.
PDI-PDE (Pre-Delivery Inspection/Expense)
Manufacturers charge this fee to get a car roadworthy, such as filling up the gas tank. These fees are generally mandatory since it costs the dealership money to do this inspection.
Administration/Documentation Fees
These fees include documentation, transaction, or licensing fees that dealerships tack onto the purchase price of a vehicle.
Government Levies
The government charges levies such as regulatory fees, tire tax, and air tax when any vehicles are purchased. The dealership passes these levies onto you. These fees are mandatory because the government always charges them.
Tire Levy Fees
Many provinces require a tire levy to be paid on new tires. This levy is meant to help with the recycling and disposal of used tires to keep them out of landfills. The problem with these fees is that some dealerships may add this fee without disclosing it. Consumers should check that the fee is actually required and not an additional markup.
Advertising Fees
Some dealerships include an advertising fee to cover the cost of marketing their inventory. Consumers may find the addition of this fee deceptive if it’s not clearly disclosed upfront.
Brokerage Fees
These fees are charged by the dealership to complete the transaction of purchasing a vehicle. The only purpose of this fee is for the dealership to make money.
Learn more: Are Quebec Car Dealers Charging Illegal Fees?
Fees To Avoid At A Car Dealership
While you may not be able to avoid certain fees when you buy a car at a dealer, there are some that you might want to think about after the transaction is done. Here are some fees you should think twice about before paying for them at a dealership:
1. Paint Protection Fee
A clear coat or sealant to protect the paint is often unnecessary and typically overpriced at a dealer. If you choose to add this to your vehicle, consider having it done by a third party for a much lower price. Otherwise, simply wax your car occasionally to keep the paint protected.
2. Fabric Protection Fee
Similar to a paint protection fee, a fabric protection fee covers the cost of adding a stain-resistant coating on your car’s upholstery. The thing is, this service is often overcharged at dealerships. Instead, purchase a fabric protector spray for a lot less and apply it yourself.
3. VIN Etching Fee
VIN etching refers to stamping the vehicle identification number (VIN) on the windows of the car. You can etch this number yourself for a much lower cost rather than paying the dealership to do it.
4. Pre-Installed Accessories
Things like door guards, mud flaps, and floor mats may be added to the cost of your vehicle, but may be added at an inflated price. See if you can negotiate a slightly lower price for leaving these add-ons out and add them yourself once you take possession of the car.
5. Window Tinting
Vehicle accessories like window tinting is a common add-on some dealerships will try to sell you. While it may look cool and offer more privacy, it may be an unnecessary expense that will only make your car more expensive.
6. Extended Warranties
Extended warranties on cars are usually more expensive than the repairs you need in the long run. According to a study by Consumer Reports, 55% of car owners did not use their warranty and those who did paid a median price of $1,200. And those who did use it spent a lot more money on coverage than they saved in the cost of repairs.
7. GAP Insurance
Guaranteed Asset Protection (GAP) insurance is an insurance plan that covers the difference between what you owe on your auto loan and the actual cash value of your vehicle if it’s stolen or totalled in an accident. In other words, GAP insurance pays this difference so you don’t have to pay out-of-pocket on your own. But rather than pay for this insurance at the dealership, you may want to look into this coverage with your insurance provider instead.
8. Nitrogen Tire Fee
Some dealerships charge extra for filling tires with nitrogen rather than regular air. This is totally optional and likely unnecessary, and will just add a few extra dollars to the overall cost of your car.
9. Loan Protection Insurance
Loan protection insurance is an optional service that many dealerships and lenders may try to convince you is mandatory. This product is an expensive form of insurance that protects both the lender and you. It covers the cost of the loan in the event you are unable to make payments due to a job loss, injury, illness, or death.
Are These Fees Legal In Canada?
Whether certain fees are legal depends largely on provincial regulations. That said, dealerships are typically allowed to charge these fees as long as they’re disclosed upfront before the sale is finalized. The question of legitimacy typically comes in when there is a lack of transparency of these fees.
In some provinces, such as Ontario, there are rules about what must be disclosed in the advertised price. If a dealership includes hidden fees that aren’t clearly communicated upfront, they may be in violation of consumer protection laws. Other provinces may have looser regulations, leading to more widespread complaints about hidden fees
For instance, in Ontario, dealerships must include all fees they intend to charge in the sale price when advertising a vehicle for sale. The only fees that may be added outside the advertised price are the following:
- Harmonized Sales Tax (HST)
- Licensing (i.e. vehicle registration and plates)
- Safety standards certificate for vehicles advertised as unfit or as-is
- Extra options that the buyer has agreed to
This is known in Ontario as “all-in price advertising“. Dealerships that are licensed by the Ontario Motor Vehicle Industry Council (OMVIC) agree to follow these all-in price advertising regulations. If dealerships want to charge for something they have pre-installed on a vehicle, they are required to include those costs in the advertised price. These costs include:
- Fuel
- Warranties
- Nitrogen for your tires
- Tire protection package
- Locking wheel nuts
- Security or theft deterrent
How To Avoid Missing Hidden Fees
To make sure you uncover any hidden fees in your contract when buying a car, follow these tips:
Carefully Review The Contract
Before carrying out a transaction, take the time to carefully read all the terms and conditions in your contract. Make sure that all fees are listed and itemized in the document. If any fee seems unclear or suspicious, question it. Don’t be afraid to ask for a full explanation of what the fee covers.
Shop Around
It’s good practice to shop around and get quotes from several dealerships to make sure you’re getting the best price for the vehicle you’re interested in. Different dealerships may have different fee structures for the same services or may be transparent with their pricing.
Understand Consumer Protection Laws
Get familiar with the consumer protection laws in your province. If you think that you’re being treated unfairly from a dealership, you can file a complaint with your local agency.
Negotiate With The Dealer
While some fees may be firm in price, others may be negotiable. Don’t hesitate to negotiate these charges if you feel they’re too high. This is where shopping around comes in handy, giving you some numbers to work with.
Learn more: How To Negotiate A New Car Price
Bottom Line
Many car dealerships charge hidden fees, and while they’re legally permitted to charge certain fees, sometimes a lack of transparency when it comes to disclosing certain charges can seem dishonest and even unfair. As a consumer, it’s helpful to understand which fees are legitimate, and how to identify potentially misleading or unnecessary charges. Read the fine print, ask questions, and request a detailed breakdown of all fees that will be included in your transaction. Whether you’re buying new or used, knowing what to look for can prevent unpleasant surprises down the road.
