The hidden costs of low rate auto loans

Down payments, prepaid interest, and fees explained

Low rate auto loans

When looking at low rate auto loans remember that car finance will cost you more than just the monthly repayments. There are many other fees included and the total amount you end up paying for will depend a lot on who you get your finance from and where you live. Upfront loan fees usually total from $50 to $100 but could cost more if you live in a high tax region.

Fees that directly relate to the loan are called closing fees. These are collected at the time of signing the contract and do not include fees collected over the life of the loan. Closing fees comprise of the following:

Down payment

A down payment is the different between the purchase price of the new or used car and the loan amount. It is usually paid directly upon purchase with cash or on the trade-in value of your old car.

Prepaid interest

Even though you are not normally due to make your first loan repayment for up to eight weeks, lenders begin calculating the interest from the day of closing. This interest is normally payable as an upfront closing fee so a useful thing to remember is that you can lower this cost by timing your closing date as close to the end of the month as possible.

Underwriting fees

Underwriting is the process of approving or disapproving a loan application and the fee is usually expressed as a percentage of the total loan amount.

Processing fees

Any initial processing costs will be charged upfront and will include application and credit report fees.

Document preparation fee

Document preparation fees can be charged either as a flat rate or a percentage of the loan amount and goes to cover the cost of all documents required for the loan agreement.

Title search fees

A title search is usually not required for new cars but can be important when purchasing a used car. Title searches ensure that there are no claims against a car or any disputes over ownership and the cost is based on the purchase price of the vehicle.

Appraisal fees

Appraisals are occasionally required to ensure that car is worth the purchase price, it is a judgment of value that is usually carried out by independent appraisers.

Finance-charge markup

A finance mark-up is not actually a closing fee but it can certainly add to the cost of your monthly repayments. Dealers can legally quote an interest rate up to 3 percent more than what you actually qualify for and because most of this extra money goes straight into their pockets as profit most will be looking to get away with this. Interest rates are negotiable so get a copy of your credit report so you know whether or not you qualify for a low rate auto loan even before you set foot into the dealership.

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