The typical American may more than a couple of cars within one lifetime. However, car salespeople sell cars every day and use that experience for their financial gain.
When you buy a new or used car, you often end up paying more than just the sticker price. Car dealers are expertly adept at trying to get you to pay for unnecessary options, features, and hidden costs.
Every smart device can download a GPS app, so you don’t need to pay for GPS when buying a car? Do you really want to pay for options like illuminated floor sills, dynamic steering, or automated lane departure warnings?
That is your right, but you will probably be hyper-pressured into making those purchases no matter what.
And at least those options are upfront — car buyers pay numerous hidden costs that they never learn about.
The average new car costs $40,000 and the average used car costs $20,000. Watch out for these five hidden costs the next time you visit a car dealership.
Inflated MSRP or sticker price
The first point of negotiation is the sticker price, sometimes referred to as the MSRP. However, the starting negotiation should be the invoice price or the price the dealer paid for the car.
A sticker price can be inflated to reflect the invoice plus projected profit margins for the dealership and other add-on costs. The car dealer is not going to suggest negotiating from the invoice price.
Research invoice prices on sites like Edmunds, Consumer Reports or CarsDirect and use the data to negotiate the price you pay.
High-interest rates with extended loan options
Know what you want before you walk onto a car dealership lot. Car dealers will pressure you into buying more expensive models. Then they can sign you to bigger loans with higher interest rates that take longer to pay.
The car loan interest rate for a new car ranges between 3% and 15%, while it ranges between 4% to 20.67% for a used car.
Since the average car loan is paid out over seven years you could unwittingly pay a fortune in interest.
Documentation, dealership, or origination fees
A car dealership might charge you $200 or more for the paperwork involved in processing a car sale transaction. Make sure you aren’t paying excessively for paperwork fees, especially since paperwork is inherent for the transaction to occur.
Basically, you’re paying them to do their job to sell you a car, an item you’re already paying for.
Delivery or destination fee
The dealer might charge you for the costs they incurred for transporting and delivering the car onto their lot long before you bought it.
You’re covering their cost of doing business, but why? Worse, you might end up financing the extra payment over years at interest.
Extended warranties
A typical extended warranty will cost you $1,500 while the average auto repair bill is less than $200. Dealers make money on commission getting you to sign one.
Unless the car is a lemon (sorry!) you’ll likely pay more in coverage relative to the benefits you actually receive.
