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Buying a Car: Why Isn’t the MSRP Also the Final Price?

If you are buying a car, you should know that the price on the vehicle’s window sticker won’t be the price you end up paying when you walk out of the dealership. Seasoned car buyers are aware that a car’s price can change by hundreds or even thousands of dollars between the manufacturer’s suggested retail price (MSRP) and the final figure. Why is this? Why can’t you expect the price you see to be the price you pay? We have the answer.

Dealership, Manufacturer and Government Fees

One big reason why a car’s total price won’t match the price on its window sticker relates to fees charged by a car dealership and the automaker. For example, although a car may cost $19,995 according to the window sticker, that figure might be the price before the addition of a destination charge, which is a pricy manufacturer’s fee that can add up to $1,000 to the price. A dealer may also charge a documentation fee to prepare the vehicle’s documents for sale, and this figure can sometimes cost as much as $500. There are mandatory government fees too, such as the cost to process the car’s title work or change the registration to your name.

Taxes, Taxes, Taxes

Dealer and manufacturer fees usually aren’t the biggest add-ons to a car’s purchase price. The priciest addition typically comes in the form of taxes, since most states levy a sales tax on the entire price of a new or used vehicle. Since sales taxes can range as high as 8-10 percent in some areas, this can easily add thousands of dollars to your vehicle’s purchase price. For example, a $20,000 car purchased in an area with a 7 percent sales tax will cost an extra $1,400 on top of the purchase price, while a $30,000 car bought in a place with a 9 percent sales tax will see a whopping $2,700 price boost before you can drive it home. Find a new car for sale near you

Incentives and Discounts

Not all price changes are bad. In some cases, a price may actually go down from the original MSRP thanks to incentives from the manufacturer or dealer or from a negotiated discount. For example, a car’s listed price may be $20,000, but if you’re able to negotiate a $2,000 discount from the purchase price and take advantage of a $1,000 cash rebate from the manufacturer, you’ll pay just $17,000 before taxes and fees. In this example, the car’s price still changes, but it changes in a favorable way for you.

Out-the-Door Price

If you don’t want to think about fees, taxes, incentives and discounts, we suggest negotiating a car’s out-the-door price when you’re buying a car. This means you negotiate the car’s price including taxes, incentives, discounts and fees, discussing only the final number with the dealer. For instance, if a car is for sale for $20,000, you might offer the dealer $19,000 out the door, leaving the dealer to compute taxes, fees and other figures in order to meet your offer price. For some shoppers, this may be easier than keeping track of every small factor that affects the car’s price. It also helps you understand what you’ll pay in the end, so the final figure with all taxes and fees added on isn’t such a shock.

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Editor’s Note: This article has been updated for accuracy since it was originally published.

Doug Demuro
Doug Demuro
Doug DeMuro writes articles and makes videos, mainly about cars. Doug was born in Denver, Colorado, and received an economics degree from Emory University in Atlanta. After graduation, Doug spent three years working for Porsche Cars North America. Eventually, he quit his job to become a writer, largely because it meant that he no longer had to wear pants. Doug’s work has been featured in a... Read More about Doug Demuro

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