When you’re shopping for a new auto loan or auto refinance, you should make sure to pay attention to the following things if you want to make sure you’re getting the best possible rate.
Taxes
Origination fees
Registration fees
Your overall APR
Your interest rate
Any dealer’s reserve
Pre-payment fees
Your loan term
Some of these fees will be stated outright, while others you might need to infer. This is part of why it’s always good to get a pre-approval before going into a dealership—so you have a good sense of the interest rate and annual percentage rate (APR) you qualify for and can catch any added markups or fees.
Read on to take an in-depth look at these fees, mark-ups, and other fine print items that can affect how much you pay on your auto loan.
Doesn’t it seem like the price tag these days is never the real price tag?
Everything has added fees and hidden costs, so it is almost a guarantee that everything will cost more than you expect. And auto loans are no exception, whether you're buying a new car or refinancing your vehicle.
There are always extra fees that rear their head and end up costing you an arm and a leg. So in this guide, you’ll get a much needed heads-up as to what to look for when you are choosing an auto loan.
We’ll answer:
What fees are charged on an auto loan?
What should I look for when choosing a car loan?
Should I refinance my existing auto loan?
Taxes
Origination Fees
Registration Fees
First let’s discuss how auto loans are calculated, and then we can get into the added fees that come into play.
You’ve picked out your car and you are so excited—it’s exactly what you want, down to the color and trim level. Once you have picked out all your add-ons, you have the total cost of the car. That is what your loan will be based on. The total amount of the car minus any down payment is the starting point for your loan. And then (drumroll please), enter the fees.
Fees and taxes are added onto your principal (the tax is calculated based on the total cost of the car), which combined with your car loan APR, will determine your monthly payments. Here are some of the fees you can expect to pay for your car loan.
These fees may also apply when you are refinancing your car, so if you choose to refinance, keep that in mind.
Yes, you have to pay sales tax on your new car. And that can add up to a lot of money. On a $30,000 car in a state with 6% sales taxes, that’s an extra $1800 for which you are responsible. This added cost gets added into your principal when you finance. Obviously taxes are non negotiable, so they are an added cost you will have to pay. You will not need to repay taxes when you refinance your car loan.
Origination fees are essentially the commission on a loan. They are also known as acquisition fees. They essentially pay for all of the paperwork that is required for financing. They are usually calculated as a percentage of the original loan, between 1% and 2% of the principal amount. On a $30,000 car with a 2% origination fee, it would be an extra $600 tacked onto your financing.
While you might not be successful, it is definitely worth trying to negotiate on the origination fees. They are one area where the lender has some discretion, and it never hurts to ask. It might end up saving you a couple hundred dollars.
And then there are the registration fees. You must pay a registration fee, title fee, and sometimes a plate transfer fee. These fees will depend largely on where you live, but you can expect them to run you somewhere around $150. These are non-negotiable fees.
Interest Rate and APR
Payment Terms
Prepayment Penalties
Customer Satisfaction
In addition to the fees that are charged, what else should you look for when choosing an auto loan?
There are a number of factors that should come into play when deciding on car loan financing. Here are the top things to consider.
When choosing a car loan, the car loan APR is perhaps the most important thing to consider. Securing a lower APR is what will save you money.
The interest rate that you are offered will be based on a number of factors, such as:
Your credit score
Your payment history
Your income
Your debt-utilization ratio
Prevailing interest rates
Your APR is your combined interest rate + any fees.
For refinancing:
If your credit score has increased since your initial financing, you may be eligible for a lower APR. If your income has increased, your debt utilization ratio has decreased, or market rates have decreased, you may also find that you are eligible for a lower car loan APR.
If your credit score has not improved, aim to increase your score before refinancing. Your credit score is the single most important factor when lenders are preparing their financing offers. Look to make consistent, on time payments and request higher credit limits. Reducing your credit utilization ratio will also help immensely. Committing to increasing your credit score will help you secure a lower rate and save you money in the long run.
When deciding on a car loan, you want to consider the payment periods as well.
In general, lower APRs are tied to shorter repayment periods, while higher APRs are tied to longer repayment periods. The shorter payment period will mean that your monthly payments will be higher (because you’re paying more of the loan in each payment), while a longer payment period will mean that your monthly payments will be lower.
You will have to figure out what works best for you—sometimes a longer loan term and higher APR is the right choice to keep your monthly expenses low. But note that sometimes, when you get dealership financing, you’re offered something that looks like a better deal because it includes a longer loan term, meaning you have a lower monthly payment, but because of the APR, will cost you a lot more in the long run.
Many car loans have prepayment penalties built into them. This is to dissuade borrowers from paying off early (after all, the earlier you pay the loan off, the less interest you will end up paying and the less money they will make).
If you are thinking that refinancing might be an option in the future, this may factor into your decision. These prepayment penalties can vary widely and can be quite expensive.
You should always pay attention to what other customers are saying. Are the lenders reliable and trustworthy? Are they responsive when there are issues? Check out websites like TrustPilot, Better Business Bureau, and Lending Tree to see what some of the most common complaints are.
Top complaints for auto loan financers tend to include the following:
Communication issues in regards to forbearance (when you pause your payments temporarily)
Repayment options for forbearance
Delays from lender with regard to loan modification
Overcollection of funds for taxes and insurance
Confusion with account notices
Putting overpayments into an unallocated fund rather than applying them to the loan’s principal
Communication issues and a lack of transparency are usually at the top of the list when it comes to auto loan lenders. Be sure to consider this when making your decision.
If you already have a car loan, you may be wondering “should I refinance my car loan?” And the answer is: probably! Here’s how you can decide if a car loan refinance is right for you.
Car loan refinance is worthwhile if any of the following apply to you:
You got talked into dealer financing with your original loan (which have notoriously high car loan APRs)
Your credit score has improved since your initial financing
The market rates have dropped since you initially applied
You need some extra breathing room in your monthly budget
You want to add or remove a co-borrower to your loan
If any of those apply to you, car loan refinance may be a great option to save money and make your life a little easier.
On the other hand, if any of the following apply to you, it might not be the best time to refinance your car loan.
If your existing loan has heavy prepayment penalties
If you need a high credit score for another application
If your existing loan is less than six months old
If your existing loan has less than a year left
If your credit score has decreased
Choosing an auto loan is a big decision, but it’s worth taking your time to read the fine print, because choosing the right loan for you can save you a lot of money and stress in the long run.
And, if you got a bad deal or your loan no longer works for you, don’t fret! Get a free, no-commitment quote from Auto Approve and our refinance experts can help you find a better deal and understand the fine print.
At Auto Approve, we work with a network of over 50 trusted lenders all over the country, which means we can get you the most competitive rates out there. Our experts can not only guide you through the process of refinancing, but can help you compare offers and complete the paperwork. Auto Approve will even handle the pesky paperwork for the DMV!
So, if you are thinking about car loan refinance, get your free quote now—all you have to do is answer a few questions and you’ll have a quote in minutes.
