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 we’re giving you a much needed heads-up on what to expect when you are choosing an auto loan.
Here are the fees that you should look for when deciding which auto loan is right for you.
What fees are charged on an auto loan?
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.
The 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.
What should I look for when choosing a car loan?
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
The Interest Rates
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
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, and 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.
Your Cash Flow and the Payment Terms
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 more expensive, while a longer payment period will mean that your monthly payments will be less expensive. You will have to figure out what works best for you.
The Prepayment Penalties
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.
The Customer Satisfaction Ratings
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.
Why should I refinance my existing auto loan?
If you already have a car loan, you may be wondering “should I refinance my car loan?” And the answer is: probably! But 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 (And they probably have!)
- You need some extra breathing room in your monthly budget
- You want to add or remove a co-borrower to you 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. But 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
Car loan refinancing can save you a lot of money in the long run, and it’s a good idea to pursue it now before the car loan rates increase (which they are slated to do later this year). If car loan refinancing sounds like a good move for you, Auto Approve can help!
Auto Approve specializes in car loan refinance, so you know you are in good hands. We have relationships with 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, contact Auto Approve to get started! You can get a free quote online–all you have to do is answer a few questions and you will have a quote in minutes.
And that’s what you need to know about auto loan fees and how you can decide which car loan offer is right for you.
Choosing an auto financing company is a big decision, because choosing the right one can save you a lot of money and a lot of stress. At Auto Approve, we specialize in refinancing so we know a thing or two about choosing the right offer. If you are looking to refinance, save yourself a lot of time and stress and let Auto Approve handle it! Get your free quote and get started today!