What to know about a car's out the door price

Quick insights

• Out the door price is the total cost you pay to take ownership of a car, including all fees and taxes. 
• Out the door price differs from the Manufacturer's Suggested Retail Price (MSRP), which is the recommended selling price of a car excluding fees and taxes. 
• Monthly payments can affect the out the door price by spreading the cost over a period of time, but interest charges may increase the total amount paid.

When it comes to buying a car, knowing the out the door price can steer you clear of unexpected costs. Buckle up as we drive you through what it means.

What does out the door price mean?

Out the door price is the total cost that a car buyer pays to take ownership of a car. It includes the price of the car and all other taxes and fees, all of which should be notated in the dealer’s bill of sale.

Knowing the out the door price helps buyers budget more accurately and avoid unexpected costs. It provides a clearer picture of the total cost of buying a car.

What does out the door price include?

When you're buying a car, the sticker price is just the beginning. The out the door price includes several additional costs that can significantly increase the total amount you pay. Let’s take a look:

• Car price: This is the negotiated price of the car itself. It's the base from which all other costs and fees are added. The car price can be influenced by factors such as the make and model of the car, whether it’s new or preowned, its condition and the demand in the market.
• Sales tax: This is the tax imposed by the state on the sale of goods. It varies from state to state, and it's calculated as a percentage of the car's price. For example, if the sales tax in your state is 7% and the car price is $20,000, you'll pay $1,400 in sales tax.
• Registration fees: These are fees paid to the state to register the vehicle under your name. They cover the cost of license plates and title (also known as a pink slip), and they vary depending on the state and the value of the car.
• Dealer fees: These can include documentation fees, destination fees and dealer preparation fees. Documentation fees cover the cost of processing the paperwork for the car purchase. Destination fees are charged by the manufacturer to deliver the car to the dealership. Dealer preparation fees cover the cost of preparing the car for sale, such as cleaning and inspecting the vehicle.

Out the door price vs. MSRP

When you're comparing car prices, it's important to understand the difference between the out the door price and the MSRP. The MSRP is the price recommended by the car manufacturer. It's often used as a starting point for negotiations between the buyer and the dealer. However, it does not include taxes, registration fees or dealer fees, which can add a significant amount to the total cost.

The out the door price is typically higher than the MSRP as it includes additional costs such as taxes and fees. For example, if the MSRP of a car is $20,000, the out the door price could be $23,000 or more after adding sales tax, registration fees and dealer fees. Understanding the difference between these two prices can help buyers negotiate a fair price and avoid surprises when it's time to pay.

How do payments affect out the door price?

Payments made on the vehicle, both at the point of sale and in monthly installments, can be directly related to the out the door price. Let’s take a closer look at two key types of payment: down payment and monthly payments.

Down payment

A down payment is the amount of money you pay upfront when buying a car. It's part of the car buying process that can impact the out the door price. Here's how:

• Lower loan amount: A larger down payment reduces the amount of money you need to borrow, which can lower your monthly payments and the total amount of interest you pay over the life of the loan.
• Less interest: Since interest is calculated based on the outstanding loan balance, a larger down payment can save you money by reducing the total amount of interest you pay.
• Avoiding negative equity: A larger down payment can also help you avoid negative equity, which occurs when you owe more on your car loan than the car's current value. This can be particularly beneficial if you plan to trade in or sell the car before you've paid off the loan.

Monthly payments

Just as a down payment can influence the out the door price, so too can your monthly payments. Monthly payments are the regular installments you'll make to repay your auto loan and they play a role in determining the total cost of your car purchase. Let's take a closer look:

• Total interest paid: The amount of your monthly payments can directly affect the total interest you pay over the life of your loan. Lower monthly payments, often achieved by extending the loan term, can result in more interest paid overall, increasing your out the door price.
• Loan term: The length of your loan term can also impact your out the door price. A longer loan term means lower monthly payments, but it also means you're paying interest over a longer period of time. This can increase the total cost of your car purchase.
• Principal reduction: Your monthly payments contribute to reducing the principal amount of your loan. Higher monthly payments can lead to a quicker reduction in the principal amount, potentially saving you money in interest over the life of the loan and reducing your out the door price.

Consistently making your monthly payments on time can positively impact your credit score. While this doesn't directly affect your out the door price, a good credit score can help you secure better loan terms in the future, potentially reducing the out the door price of any future car purchases.

The bottom line

Understanding the out the door price can help you make informed decisions when buying a car. This price includes not just the price of the car, but also sales tax, registration fees and dealer fees. While monthly payments can make a car purchase more affordable, they may increase the total cost due to interest charges. It can be helpful to compare the out the door price with the MSRP to ensure you're getting a fair deal.