Are there any hidden fees in car loans?
There are many small fees and charges associated with buying a car that you may not be aware of. So-called hidden fees may not be secretly inserted into an agreement, but they can significantly increase the final cost of a car loan agreement. Although many fees are standard, some may be negotiated and others may not be paid at all.
What to expect when financing a vehicle
The price of the vehicle you are considering buying only starts with the cost of the car, which is usually referred to as the Manufacturer’s Suggested Retail Price or MSRP. Also called list price, this is simply the starting point of your vehicle’s price and is why most car advertisements say “starting at” when they advertise prices.
Before you dive into your first or next car buying experience, make sure you know what to expect in terms of additional costs. These fees can certainly seem hidden if you don’t know they exist!
Here are some fees and commissions to expect on a car loan:
- Deposit: Many lenders require a deposit to get a car loan, and if you have bad credit, it’s almost guaranteed. Typically, subprime lenders who work with consumers in credit difficulty require $1,000, or 10% of the sale price of the vehicle. Whether mandatory or not, a down payment is a good idea, regardless of your credit score.
- Interest charges: Interest charges accrue daily based on the amount you owe on your loan. The amount you have to pay depends on the interest rate you get on your loan. Generally, the higher your credit score, the lower the interest rate you are usually assigned. These charges aren’t hidden, but neither are they something you see up front. The longer you owe, the more you pay. Be clear about the amount you’re looking at by asking your lender how much interest you’re expected to pay by the end of the loan term.
- National and local taxes: These vary depending on where you live. Even if you buy a car in a different state than where you live, taxes are determined by your home state and where the vehicle is registered. Sales tax is non-negotiable, although not all states tax vehicle sales.
- Title and license fees: These are standard fees that are usually levied at the dealership for plating and titling the car. Dealerships also have no control over these charges, as they are regulated by the state in which you live.
- Application fees: This varies by dealership; this is the cost of a dealer handling the paperwork for your state. These fees can range from $0 to $1,000. Check your state’s minimums to get an idea of what to expect.
These fees are generally standard when you finance a vehicle. Remember that the price shown in the window is only part of the total cost of buying a car.
Fees you can negotiate
All costs associated with a car loan or the purchase of a vehicle do not have to be paid. Some fees, such as optional dealer add-ons, may be waived. Others, like your interest rate or dealer doc fees, can be negotiated cheaply.
Many fees on your loan can be negotiated or deleted such as:
- Dealer fees – Also called dealer add-ons, these are a wide range of services and optional items. It might be easy to overlook some if you don’t know what you’re looking at. These fees can range from a few dollars to hundreds or thousands of dollars depending on your situation and the vehicle you purchase.
- Floor Plan Fee – The cost of maintaining a vehicle in the field.
- Advertising costs – Concession fees for advertising, probably to get you in.
- Destination and Delivery Charges – Fees associated with the cost of shipping a car from the manufacturer to the dealership.
- Extended warranties – Optional, and sometimes called a service contract. They are generally intended for used vehicles that are no longer covered by the manufacturer’s warranty.
- Protection of paint and fabric – Optional, usually unnecessary.
- Rustproof – Optional, may be worth it in states with winter snow or coastal states where salt damages cars.
- Credit insurance – Optional; it covers your car payments if something happens to you.
- Anti-theft protection – Optional insurance coverage that marks vehicle parts and places them in a traceable database. Often includes identity theft protection.
- VIN engraving – Optional; engraves the vehicle identification number on the windshield.
- Interest rate surcharges – Dealers can increase the interest rate assigned to you by the lender and profit from it. Not all dealerships do this, and you may not know if they do, making this the only truly hidden fee on some auto loans. To combat this, research average interest rates before buying a car, so you know if yours seems too high.
If the goal is to save money on your next auto loan, research is key to successful negotiation. First, make sure you know where your credit is. This should be the first step every time you take out new credit. It doesn’t hurt your credit to check your scores and reports yourself, and it can make a big difference in your bargaining power when you know what the lender sees.
Your interest rate and the length of your loan are often determined by the credit score range you fall into. Knowing your score and what’s on your credit reports allows you to research what other borrowers in similar credit score ranges are seeing on average. Your interest rates and loan terms may differ somewhat, but knowing the average gives you leverage to fight off a dealer who offers you seemingly unrealistic rates.
Remember that you don’t have to take the first offer you get if it doesn’t suit you.
Build the deal that’s right for you
In order to get the right auto loan for your situation, you need to plan for the total cost of vehicle ownership, and that means more than the costs associated with your loan. When budgeting for your next car, also factor in the cost of fuel, maintenance, and insurance. These everyday expenses can make or break your car buying budget.
Take some time to also shop around for an affordable car insurance policy. When you finance a vehicle, lenders require you to have comprehensive coverage. It’s usually more expensive than basic coverage options, and there are plenty of insurance companies to choose from. Try to get an affordable insurance policy before heading to a dealership, as you need proof of insurance before you can drive the car off the lot.
Another way to make sure you’re getting a good deal is to stick to your budget. To do this, however, you have to look at the big picture. When shopping for a vehicle, don’t be a payment buyer. If you’re more concerned with buying a car that fits your monthly payment range, and not the overall cost of it, you might be overwhelmed. Remember to balance both your monthly payment and the term of your loan so that you don’t pay more for the vehicle than it is worth.
Ready to start?
Now that you know what to expect from any additional charges you might see in your next auto loan deal, you can start taking the next step: finding a lender who can work with your credit. If you are in trouble due to bad credit, Auto Express Credit wants to make your auto loan experience smoother. We have cultivated a network of special financing dealers across the country who are signed up with subprime lenders.
These lenders know you’re more than a credit score and want to get you the vehicle you need. Don’t waste time and money driving to parking lots that may not be able to help you. Start on the right track by filling out our fast, free and non-binding form car loan application formand we’ll put you in touch with a local reseller.