Hidden Costs of Buying a Car – Even When Paying Cash

Jeep Wrangler Sahara
Jeep Wrangler

If you think the only cost associated with buying a car you need to be concerned about is the asking price, you might be in for a bit of a shock as I’m going to reveal the hidden costs of buying a car and how you might not avoid monthly payments even by paying cash for a new car.

Being aware of your budget is always a good idea, especially if, like me, you’re not exactly rolling in spare cash. But when it comes to buying a new vehicle, a lot of people just think about the asking price, how much you’re getting for your trade-in, and how much the finance is going to cost if you haven’t bought your vehicle outright for cash. The truth is there are a lot of hidden costs when it comes to buying a car.

Some expenses you’ll be aware of even if they’re not at the forefront of your mind, but some you might not have even imagined. In this article, I’m going to reveal the true costs involved with a vehicle purchase, and also how you might not necessarily be avoiding monthly payments by paying cash and buying outright instead of on finance.

Here I’m going to look at:

  1. Fees added by the dealership
  2. Destination charge
  3. Registration and title fees
  4. Insurance
  5. Fuel
  6. Maintenance
  7. Sales tax
  8. Depreciation

1. Fees added by the dealership

Do you know those really annoying booking fees that get added to your cart when you’re buying tickets for show and sports events when booking online? Well, you can experience something similar when you’re buying a vehicle. These add-on fees come in many guises and for many claimed reasons, but I always consider them to be unjustified.

Like any business, car dealers have costs associated with operating, but should the customer be asked to cover them? Dealers may charge fees for things like preparing a car for delivery, having the vehicle you want transporting to the dealership, the paperwork associated with the sale, and anything else they can think up.

Ask yourself this question; if a restaurant you go in for a meal has just had to replace a broken deep-fryer or some other piece of equipment, would you be happy to pay an additional fee on top of your bill to help cover that cost to the owner? I think I’m pretty confident your answer would be no, so why should you pay a fee for the dealership to prepare a car for sale.

All operating costs for a dealership should be paid for by profits, so adding fees on top is just a way of getting extra profit without raising the asking price of the vehicle. If you’re a confident enough negotiator you should refuse to pay these fees, but if you’re not, at least you’ll now be aware of what you’re really paying for. Please remember, I’m not talking here about the “destination charge” when buying a new vehicle.

2. Destination charge

The destination charge isn’t a fee added on to your bill by the dealer. The destination charge is what the manufacturer charges the dealership for delivering the vehicle from the factory to the selling dealer, and it’s then passed on to you as the customer. This fee is non-negotiable.

You might wonder why the destination charge, which is always quoted separately from the MSRP, is the same amount no matter how far the dealership is from the factory that builds the vehicle. In some cases, such as Alaska and Hawaii, the fee will be higher, but the rest of the time it is based on the average cost of delivery and not the cost of delivering to a specific destination.

3. Registration and title fees

Until a new vehicle is legally registered to you in your name, you’re not going to be able to drive it legally. This inevitably means more fees, and now we’re talking about registration and title fees that cover the registration process, a set of license plates with your number on them, and the title documents showing you as the owner of the vehicle.

Although these are not a massive cost they can vary quite considerably, depending on where you live. Here’s a comprehensive list of state license, title and registration fees:

State Registration Fee License Plate Fee Title Fee
Alabama $15-$23 + $50 annually $1.25 to transfer $15
Alaska $100 N/A $15
Arizona $8 + $32 Public Safety Fee $12 to transfer $4
Arkansas $17-$30 $1 $10
California $60 plus a transportation improvement fee of $25-$175 $27 $15
Colorado Based on weight Varies by county N/A
Connecticut $80 for two years $7 $25
Delaware $40 N/A $35-$55
Florida $14.50-$32.50; $225 for new vehicle fee $28 for new plates $77.25-$85.25
Georgia $20 N/A $18
Hawaii $45 plus a weight-based fee $5 $5
Idaho $45-$69, depending on vehicle age N/A $14
Illinois $101 N/A $95
Indiana $21.35 N/A $15
Iowa Up to 1% of list price, depending on age N/A $25 for replacement
Kansas $39-$49(depends on county) N/A $10 and up
Kentucky $21 N/A $9
Louisiana $20-$82 depending on the value N/A $68.50
Maine $35 N/A $33
Maryland $135-$187 for two years $10 transfer $100
Massachusetts $60 for two years $25 transfer $75
Michigan Based on vehicle value N/A $15
Minnesota $35 and up, based on vehicle value $12 (double plates) $28.25 (as of July 1, 2020)
Mississippi $12.75 for renewals, $14 for first-time registrations N/A $9
Missouri $21.75 and up based on taxable horsepower N/A $11
Montana $28-$217, based on vehicle age, plus a 3% fee N/A $10-$12
Nebraska $20.50 including fees $3.30 per plate $10
Nevada $33 $8 $29.25
New Hampshire $31.20 and up based on weight plus a $10 transfer fee plus local fees $8 $25
New Jersey $35.50-$84 based on weight $6 $60 or $85 with lien
New Mexico $27-$62 based on weight and model year No cost $5
New York $26-$140 based on weight $25 $50
North Carolina $36-$67 based on weight $20 $52
North Dakota $49-$274 based n age and weight No cost $5
Ohio $34.50 $4.50 to transfer;$11.75 for new plates $15
Oklahoma $96 for a new registration; decrease over time N/A $11 plus $17 transfer fee
Oregon $112-$172 for two years; for new cars, $248-$368 $24 for new plates, $6 to transfer $93
Pennsylvania $37 N/A $53
Rhode Island $41.50 N/A $51.50
South Carolina $40 N/A $15
South Dakota Based on weight and model year N/A $10
Tennessee $76 Included No limit
Texas $51.75 plus local fees Included Varies by County
Utah Based on model year Included $6
Vermont $76 Included $35
Virginia $40.75 – $51.75 based on weight (plus $2 for emissions inspections in some localities) Included $15
Washington $30 plus filing fees $10 per plate $15
Washington D.C. $72-$155 based on weight/ $36 for hybrids/EVs $7 tag transfer; $10 replacement $26
West Virginia $51.50 Included $15
Wisconsin $75 Included $69.50
Wyoming $30 plus county fees Included $15

These are not the only state fees you might encounter either, by any means. For example, from July 1st 2020 California is introducing an additional $100 Electric Vehicle Fee. This is the upfront fee for anyone purchasing a new electric vehicle, but there will also be further annual fees based on the market value of the vehicle.

Do you remember when places like California were offering buyers thousands of dollars in incentives to get them to buy electric cars? Well, they’ve now realized how much gas tax they’ll be losing if we do change to electric cars so they’re going to fill the shortfall with new taxes for EV owners.

2019 Nissan Leaf
Nissan Leaf

4. Insurance

 It’s not compulsory in every one of the 50 states for you to have vehicle insurance, but you’d have to be pretty dumb to go out on the road without it. Even if you’re driving an old rust bucket and you don’t care if it gets damaged, insurance is needed for covering you for claims that could be made against you by other drivers for damage to their vehicle or personal injury if you’re involved in an accident.

The average cost per year for car insurance is said to be somewhere in the region of $1,600, but prices will vary considerably depending on factors like your age, occupation, health, and the type and value of the vehicle you’re insuring.

I simply cannot stress strongly enough how vital it is to have good car insurance, but if you want to keep the cost down you should use a comparison site such as Insurify to get a list of the most competitive quotes for you. However, you also need to think carefully about the quality of the cover you have too. It’s no good having cheap insurance if it doesn’t give you the cover you need. Cheapest isn’t always best.

5. Fuel

Gas prices might be pretty reasonable and stable right now, but they can go up at any time and that could add a sizeable amount to the cost of running your vehicle. The electric cars we mentioned earlier are going to cost less to power than a gas or diesel vehicle at the moment but look into them carefully before you take the plunge because they’re not as cheap to run as you might expect.

6. Maintenance

If you’ve ever owned a vehicle before you’re probably aware of how much they can cost to maintain, especially as they get older and get more miles on the odometer. But even if you don’t have any unexpected breakdowns or failures, the routine maintenance costs can still mount up.

If you buy a brand new luxury model you’ll probably want to get it serviced at a main dealer, at least as long as it’s still under warranty, anyway. Just go and look up how much a second-year service costs for a Mercedes, and then that lease deal that made a C-Class look really affordable might not look like such a good idea after all.

Buying used only brings the issue of maintenance into even sharper focus, especially if you’ve snapped up a used luxury car for a great price that you’d never have been able to afford to buy new. You can get a used 7 Series BMW for a fraction of what it cost new, but parts and service for a 7 Series BMW still cost BMW 7 Series money, even when it’s 12 years old or older.

2020 Toyota Tacoma
Toyota Tacoma

7. Sales tax

Almost every state has some form of sales tax, so it’s a good idea to make yourself aware of how much it is where you live by contacting your local tax authority or asking the dealer before you buy. These taxes range from 2% to 8%, and that can add a hefty chunk of cash to the price of an expensive vehicle. Needless to say, this is another of those hidden costs you’re not going to be able to negotiate away.

8. Depreciation

Add everything up together that I’ve covered already, and all that still won’t add up to as much as the cost of depreciation. This is the single biggest cost associated with buying and owning any vehicle, but there’s only a certain amount you can do to mitigate it.

Depreciation is the difference between what you pay for a vehicle when you buy it and how much you get for it when you sell it or trade it in when it’s time to get something else. It will vary considerably depending on the vehicle you choose to buy, how well you look after it, and how many miles it has on the odometer when it comes time to sell.

According to the experts at KBB.com, vehicles like the Toyota Tacoma, Jeep Wrangler and Subaru Impreza are among those that depreciate the least, so these are the ones to go for if you want to minimize the amount you’re going to lose over the time you have a vehicle. 

The Jeep Wrangler is predicted to retain about 66% of its original value after 36 months, but that still means you’ll lose around 34% over that period. On a vehicle that costs $40,000 that will be more than $10,000.

At the other end of the scale, models like the Nissan Leaf, Chevy Volt, and the BMW 7 Series I mentioned earlier will lose more than 71% of their original value over five years. If these numbers scare you, make sure you look up the appropriate depreciation rates before you consider buying any vehicle.

2019 Subaru Impreza
Subaru Impreza

9. Monthly cost of paying cash

Paying cash for a vehicle and buying it outright means no monthly payments because you haven’t got finance, right? Well, not necessarily. If you have lots of money and you’re not going to miss the cost of buying a car, then no, you won’t have any monthly payments.

But if buying a car outright has cleaned out a big lump of your savings, which for many of us it will do, surely you’re going to want to replace that money by putting aside a little every month? Apart from the fact you’re not beholding to a finance company and paying interest, what’s the difference between replacing those savings and monthly payments for a lease or auto loan?

There’s also the issue of how much money you’re not making on money you spend on a car that could be invested elsewhere to actually earn you extra income. To find out more about the issue of buying for cash or on finance, take a look at my article “Buying a New Car: Should You Pay Cash or Use Finance?”