This is part of our Car Buyer's Glossary series breaking down all the terms you need to know if you're buying a new or used car from a dealership.
If you're financing the purchase of a car, there are three layers of payment: initial, long-term, and total. The initial payment is made at the dealership the day the car is bought. The long-term payment is typically a monthly rate that can last several months, often years. The total cost is every dollar that is made toward the purchase of the car over time, including the initial, the monthly, and the interest. The initial payment is often known in the car-buying process as the drive-off price.
Though the drive-off price is essentially paid all at once, it is composed of numerous costs. It includes the down payment, the documentation fee, sales tax, the title and registration fee, the destination/delivery charge, and occasionally other dealer-specific fees.
What charges are within the drive-off cost?
When financing the purchase of a car, the down payment is a large sum of money that goes toward the purchase price of the vehicle. In most cases, the bigger the up-front down payment, the lower the monthly payment and better financing options will be. Beware of places that offer deals with no down payment, as this type of financing is typically meant to trap customers with extremely high monthly rates and high interest. The car will end up costing far more in the long run.
The documentation fee can range in the hundreds of dollars and is meant to cover the costs of the dealer processing the transaction. Tax is self-explanatory and is determined by local and state tax rates. The title and registration fees come courtesy of the local department of motor vehicles. The destination/delivery charge is not negotiable and can easily be researched prior to purchase -- some publications will automatically add it to
Manufacturer's Suggested Retail Price (MSRP). It is a fee made to recover the costs of shipping the vehicles to the dealer and is passed to the customer.
Depending on the car and the down payment, the drive-off can range from hundreds to thousands to tens of thousands of dollars.
What about leasing?
This is slightly different if the transaction is for a lease rather than a purchase. The final drive-off for a lease typically includes the down payment, first month's payment, documentation fee, acquisition fee, sales tax and title. Of course, this is the cost that it takes to essentially borrow the car for a set period of time, not take ownership.
How do you find out the drive-off cost?
Asking the salesperson the drive-off price, also known as the "total due at signing" or "out the door cost" is the best way to ensure you know exactly how much you'll be paying. A negotiation might determine how much you'll pay relative the MSRP, but that's before these various drive-off costs are added in. Requesting, "what's the out-the-door cost today?" will force the dealer to lay out exactly how much you're paying on that day of purchase.
This article was written by Tony Markovich
