Hidden Costs of Buying a Car: What Dealers Won’t Tell You

Author: Jeo George•Published on: 12/29/2025•5 Minutes

Overview:While buying a car, some people still consider the ex-showroom price as the final on-road price. The majority of the car-buying audience is now aware of the difference between these two aspects. However, many are still unaware of the bifurcation of on-road prices and optional add-ons, which can become hidden costs when purchasing a car. After getting the cars at their respective billing prices from car manufacturers, authorised dealerships usually add some sneaky charges and add-ons. Many of them may not be comfortable explaining these hidden charges in the car-buying process in detail, and fail to take advantage of the opportunity to avoid unwanted expenses. Here, we will discuss all the optional add-ons and the charges that are often hidden by dealerships and not disclosed promptly.

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Key Highlights:

Understand the expenses of the percentage of road tax out of ex-showroom, number plate charges, and RTO fees individually while checking road tax charges.

Insurance amount, including optional add-ons, and car loan options are typically more expensive at dealerships, with higher interest rates and more costly terms.

You can avoid optional add-ons, such as extended warranty coverage, additional insurance, an annual maintenance package, and an accessories package

Road Tax Charges

The biggest contributor to the on-road price of a car after its ex-showroom cost is the road tax charge, which is a state-level tax paid to the Regional Transport Office (RTO). This road tax charge is typically a percentage of the ex-showroom price, which varies depending on factors such as the type of vehicle, powertrain, and dimensions. All states have different road tax charges, which usually vary between 8 and 20 per cent, with union territories typically incurring the lowest road tax charges.

Insurance Charges

Gone are the days when a car insurance cover included only the basics, such as third-party cover and own damage cover. Nowadays, dealerships of all car companies, as well as insurance companies in general, offer car insurance policies with useful add-ons, such as zero depreciation coverage, return-to-invoice protection, engine protection coverage, and more.

The percentage and bifurcation of these add-ons in a car insurance cover are rarely described by salespersons during negotiations. However, you should opt for only those add-ons that are suitable for your driving preferences and conditions. For example, opting for an add-on like flood damage cover is useless in regions with low rainfall.

Logistic Charges

Some car companies include their logistics charges in their ex-showroom prices, while others charge an additional amount for the same. Ideally, charging any amount as “logistic charges” is an illegal practice, which you should refuse to pay upfront.

If the authorised dealership is adamant about charging you any additional amount as “logistic charges”, you can register an official complaint with the manufacturer’s customer care service or an online complaint on public forums.

Extended Warranty Package

In today’s day and age, all car companies offer a standard warranty to cover mechanical and electrical faults (if any) that pop up in the mentioned duration. However, all car companies also offer extended warranty packages, which extend the duration or kilometre limit (ideally, both) of the standard warranty.

The higher the vehicle's price, the higher the charges for the extended warranty package. This is an optional add-on and should be purchased only if you intend to keep the vehicle for an extended period.

Annual Maintenance Coverage

In addition to extended warranty coverages, many car companies are now also offering annual maintenance coverages. This is essentially a bundle plan, in which dealerships cover the maintenance expenses for a set duration or kilometre limit. The total amount of this coverage is usually less than the total of subsequent maintenance charges for every individual year of car ownership.

Accessories Package

Dealerships also offer a ‘standard’ accessories package, which is a combination of a few authorised accessories from the car brand's collection for that particular model. This is an optional package of accessories, which some dealerships may even pressure you to purchase. The costs of these authorised accessories are usually higher compared to the same type of accessories available in aftermarket car accessory shops.

Number Plate and FASTag Charges

Nowadays, a vehicle must roll out of the showroom with its high security number plate and FASTag sticker. While the FASTag amount is usually charged separately, the number plates are included in the total cost of road tax charges. Since these are government-mandated items, you must pay their charges, which are set at fixed rates.

Hidden Charges in a Car Loan

All banks and financial institutions that offer car loans have some hidden charges in their terms and conditions. Some of the most commonly known hidden expenses in a car loan include foreclosure charges, field inspection fees, loan processing fees, and hidden interest markups.

Know the Full Cost Before You Buy a Car

When buying a car, the final on-road price of a vehicle is the total of various essential elements (such as ex-showroom, road tax charges, and third-party and own-damage insurance) and optional add-ons (like insurance add-ons, accessories, warranty, and maintenance coverages). The hidden clauses in car loans can also increase the initial expenses associated with buying a car. You should be aware of all these charges and negotiate with the dealerships and finance institutions, as they have healthy margins in these aspects.

FAQs

1. What are the hidden charges in a car insurance policy?
Besides the usual essentials, such as own damage cover and third-party cover, car insurance policies also offer optional add-ons, including zero depreciation cover, return-to-invoice, engine protection cover, and more.

2. What are the hidden charges in the road tax for cars?
The road tax charges mentioned by authorised dealerships include number plate charges and hypothecation charges (if the car is purchased on a loan), with the road tax amount varying in all states due to individualised road tax rates for each state and union territory.

3. What are the optional add-ons while buying a car?
The optional add-ons that you can skip when buying a car include insurance add-ons (such as zero depreciation cover, return-to-invoice, and engine protection cover), extended warranty coverage, annual maintenance coverage, accessory packages, and car loan clauses.