What are the Fees Associated with Auto Loans?
When you want to purchase a new or used vehicle, keep in mind that there are more costs involved than you may have initially realized. There are fees that come with auto loans that you may want to keep in mind. Keep reading to learn about fees associated with auto loans below. Max Cash® is here to help you learn!
Interest Rate
The interest rate is one of the most notorious extra costs that come along with taking out an auto loan, or any kind of loan for that matter. This is how the auto loan lenders make money.
The percent rate for your interest will depend largely on where your credit score currently is. The higher your credit score is, the lower your interest rate may be. Likewise, those with not so good credit may be charged a noticeably higher interest rate.
APR
APR stands for annual percentage rate. It is the interest rate stated as a yearly rate. It could include fees you might be required to pay in order to take out your loan, such as origination fees. To put things simply, the APR of an auto loan is the amount of money that it costs to borrow the money.
Taxes and Fees
If you are buying a new vehicle, you are paying noticeably more than just the sticker price. You may also have to fork out money for the registration fee, the documentation fee, as well as the sales tax. Some dealers may forego the documentation fee in certain situations, but that is up to the individual dealer. It could get as high as $500 in some cases.
Unfortunately, the sales tax and the registration fee are two costs that you may be unable to avoid. When you do go shopping for a vehicle, make sure that you factor in those costs into the overall price.
GAP Insurance
When taking out an auto loan, you might be tempted to buy GAP (guaranteed auto protection) insurance. This will cover the difference between the amount of money that your auto insurance will cover and the outstanding balance on your loan if the car is stolen or totaled in an accident.
Negative Equity
Negative equity is the amount of money that is left over when you trade your car in, but its value is not enough to cover the total cost of the new vehicle. You could end up owing more on your loan than the vehicle is worth.
For example, let’s say that you have a $7,000 balance on your auto loan. Your dealer says to you that the trade-in value of your current car is $5,000. So, you then have $2,000 in negative equity. If you are trying to buy a $15,000 car, you will be financing $17,000 on a $15,000 car.
Extended Warranty
An extended warranty is a policy that car dealerships often offer. The warranty covers the costs of any electrical or mechanical vehicle issues that are not covered by any manufacturer warranty.
These kinds of warranties are not necessarily required for you to purchase. So, give this a great deal of consideration and time before you go ahead and obtain one.
Opportunity Cost
Obviously, the best time for you to buy a car is when you have the means to afford it. When you do this, that means taking into account the opportunity cost comes into play. Although this is not a fee per say, opportunity costs are the financial opportunities that you are relinquishing in order to spend your money on a vehicle (or whatever you are choosing to buy) over something else altogether. In the case of an auto loan, you are giving up the opportunity to spend your money on other things because you will be using the money to pay back the loan.
Prepayment Penalty
If at any point you wish to pay off your auto loan early with cash or a refinanced loan, you may end up wishing to reconsider doing so. There is a hidden cost known as a prepayment penalty, which is a fee that you will be charged with for paying off the loan before its term is up. This is a factor that will need to be added onto the cost of refinancing your current auto loan.
Credit Insurance Protection
A credit insurance protection policy will cover your car loan payment in certain situations. For example, if you become disabled or you are laid off from your job. This may sound like a great idea, but it could get expensive. It would be better if you found out what sorts of provisions you may already have for covering your needs should a bad situation come to pass.
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