Interest rate AND finance charge on auto loan?

[bryan013]

Hello, I'm curious if it's normal to pay both an APR and a one-time finance charge when getting an auto loan at a dealership.

Is this standard practice, or did they pull one over on me?

Does anyone know exactly which additional charges are mandatory and which are negotiable, when buying a car?

[bjl584]

pretty much everything is negotiable when buying a car.

They probably hit you with a fee to contact a lender and have them approve you a loan.

Probably not much you can do about it now since it's after the fact.

[bryan013]

Thanks! Yes I suspect you're right, and I know there's nothing I can do after the fact. Buying a new car soon and wanted to make sure I was prepared this time

Thanks!

[Permanent Temp]

That doesn't sound normal to me. My husband works at a dealership. Go to a reputable dealership. And try to call in there and talk to a rep before you come in. You'll get a better price and set it up so all you need to do is come in test drive it and if you like the car sign the paperwork.

[ua_guy]

It depends on what you mean by "finance charge."

I believe on the required Truth In Lending statement, it shows you the APR, total finance charge, and a few other numbers. On that statement, the "finance charge" is just the sum total of interest you'll pay over the life of the loan, and doesn't represent any charge above and beyond the interest you're paying. (I'm doing this from memory, so if anyone works at a dealership and does finance contracts, please chime in...).

If the dealership wants to charge you an administrative fee to line up financing, just go get your own financing (personal bank, credit union, etc). It's not required that you take dealership financing.

Edit: Better yet, go get pre-approved for a loan through your own bank/credit union. Then, ask if the dealership can beat the rate or terms (sometimes they can, because they'll sacrifice part of their holdback with the same bank).

A lot of dealers automatically tack on a "negotiable" administrative fee. I forget what it's called in my state, but it's allowed by law and must be disclosed. Here I believe it's up to $150.00. There generally isn't much you can do about it, unless you can recover that cost somehow in the selling price of the car.

[Dsquared513]

I just bought a car a few weeks ago, here's what I read. Like ua_guy said, the term finance charge is just the amount of interest you will owe on the loan. The only charges besides purchase price are tax, title, and doc(umentation) fee. All of these are dependent on which state you live in, I'm in Ohio, our sales tax is 6.75% and the max doc fee allowed is $250 I think, title in my county was $55 I think. There's nothing you can do about tax and title, but the doc fee is what the dealer charges you for filing the paperwork and stuff, so you can try to have that taken off of the purchase price of the vehicle. A lot of less reputable dealer's can often be in cahoots with a particular lender, they get kickbacks for using that lender or the lender will push through subprime applications for them, so getting preapproved (not prequalified) by a credit union is your best bet (they usually have lower rates than most banks).
Some states don't have a maximum doc fee, so be careful. The issue is that if you try to finance through the dealership what they will do is ask you how much money you will put down, then they will go pretend to plead your case to a lender, then they come back and say "Well, we pulled some strings and we can get you 60 months at 300 a month or 72 months at 275 a month" and you say no, so then they go into their little office and come back and say "Ok, I called in some favors and I can get you 66 months at 285 a month or 78 months at 260 a month." They love to just tell you your monthly payment, as if you're negotiating with the finance guy and not negotiating the price of the car. Don't get me wrong, you can try to negotiate with a lender for a better rate, and 1% difference can be a 10 or 20 dollar a month difference; but when most people go into a dealer to negotiate they want to negotiate the purchase price of the vehicle. This is why preapproval is great, it gives you leverage and keeps them from trying to smoke and mirror you with monthly payments. So look up the sales tax in your state (assuming you're buying in state), title in your county, and max doc fee in your state; then apply to a credit union for preapproval (it helps if you've already found the car and know the vin). Once your credit is run once it can be run multiple times in a few days without negatively affecting your credit score (just the first inquiry lowers it slightly) so you can try a few different places. Make sure you have gone through a checklist of pertinent questions to ask before you buy a car(google it), sign the line, and enjoy your new (to you at least) car!

[autoxer]

Edit: Better yet, go get pre-approved for a loan through your own bank/credit union. Then, ask if the dealership can beat the rate or terms (sometimes they can, because they'll sacrifice part of their holdback with the same bank).

Definitely get another loan offer lined up to make sure the one they give you is competitive. And don't tell them you are going to use another banks financing until you have already negotiated the price of the car. You are better off negotiating the total purchase price of the car instead of trying to get to a certain monthly payment. Figure out the loan terms ahead of time, so you can go in and just haggle over the purchase price. So if you financed $15k @ 2.5% for 3 years, the monthly payment would be $433. Mess around with an Excel Loan Amortization spreadsheet to plug in different numbers. Don't let the dealer work back from a certain monthly payment, because they'll try to extend the terms and pad in other costs.

The whole process sucks, but don't let them pressure you into anything. Walk away if they are getting pushy and ask more questions on the forum before going back to the dealer.

Also check out the car on www.truecar.com, to see what kind of pricing you can expect. If you want to really beat them up on pricing, call another dealership to get a competitive quote.

[bryan013]

Thanks for the help, everyone!

So I was totally mistaken, the "finance charge" wasn't actually a one-time fee, it was a number provided as a courtesy in the "Truth in Lending" section, as ua_guy mentioned. It was through a VW dealership, so I assume they're reputable.

I've sort of reverse-engineered my last sales contract, with your advice, and now I should be able to crunch numbers on the fly to avoid having to talk about monthly payments with the salespeople.

With my last purchase, I was able to get a few different quotes using TruCar.com, took the lowest quote to a dealership I actually liked and asked them to match it. It was well under invoice price and although I qualified for a crazy-low interest rate, they told me they wouldn't go lower than 2% because they had to make money somewhere since they weren't making any on the car itself.

I figured that was a good deal because I could just pay off the loan early and avoid most of the interest charges. So that's one reason to go with the dealership financing, I think they're sometimes willing to make less on the sale if they know they'll be making it back through financing.

Thanks again! I've got a nifty little spreadsheet on my phone now that will let me figure monthly payments on my own, so I can focus on negotiating the price instead, like you guys suggest.

Also think I'll go with a used car this time to let someone else pay for the bulk of the depreciation

[snafu]

I totally support the idea of buying a 2 or 3 y/o car. I suggest checking Lemon Aid or similar book that lists problems you can expect from various cars and specific models. KBB gives good info on what you could expect to pay at a dealership. We go one further and check with Better Business Bureau to see if they have issues that have not yet been resolved. It's also helpful to check with your insurance agent about issues that might make a particular vehicle into a higher cost than most other similar vehicles.

D Squared & ua nailed it! Some dealerships add charges for transferring vehicle's warranty. That sum can be negotiated as it's not auto manufacturer fees. Dealerships they use all kinds of different terms to pad the profit so you need to be vigilant. You are in charge of the deal until the second you sign the contract. At that point it all swings to the salesman. Most cubical are wired so the sales manager or finance manager can step in if they feel the deal is going off the tracks. If you're there with wife, SO, GF or good friend, I hope you'll talk about planning to spend $3 - $5 K less than advertised price and explain that if you don't get the deal you want, you'll walk yadda yadda, saw something similar in Auto Trader and like that colour better...

Credit Unions can offer terrific deals and it can't hurt to get pre approved to have a back-up position.

[herdjohnson]

Thanks for the help, everyone!

So I was totally mistaken, the "finance charge" wasn't actually a one-time fee, it was a number provided as a courtesy in the "Truth in Lending" section, as ua_guy mentioned. It was through a VW dealership, so I assume they're reputable.

I've sort of reverse-engineered my last sales contract, with your advice, and now I should be able to crunch numbers on the fly to avoid having to talk about monthly payments with the salespeople.

With my last purchase, I was able to get a few different quotes using TruCar.com, took the lowest quote to a dealership I actually liked and asked them to match it. It was well under invoice price and although I qualified for a crazy-low interest rate, they told me they wouldn't go lower than 2% because they had to make money somewhere since they weren't making any on the car itself.

I figured that was a good deal because I could just pay off the loan early and avoid most of the interest charges. So that's one reason to go with the dealership financing, I think they're sometimes willing to make less on the sale if they know they'll be making it back through financing.

Thanks again! I've got a nifty little spreadsheet on my phone now that will let me figure monthly payments on my own, so I can focus on negotiating the price instead, like you guys suggest.

Also think I'll go with a used car this time to let someone else pay for the bulk of the depreciation

Just confirm that there is no penalty for early payoff or paydown. If they say that's where they're making their money, they may try to slip it in.

[eric448503]

Tax, title, license, doc fee, purchase price.

These are the only things you "have" to pay for. Be prepared to stick to your guns and walk out if they are trying to charge you for other things, unless they are stated on an addendum of things they have added to the vehicle; locking lug nuts, splash guards etc. Which should be clearly marked somewhere on a label that's near the Monroney label. Also do your homework on what type if interest rates the manufacturer is offering, they can be very low at times. If you have very good credit, 750+ with no late auto loan payments, you would qualify for the lowest interest rate available from ANY bank. Do not be afraid to go to a credit union either, they typically offer very good rates, but these rates can be beaten by major banks at times. Every dealerships goal is to mark up your interest rate 2% if they can, so ALWAYS fight for the lowest rate you can get. They typically won't tell you what that number is, just keep fighting with them. If you put good money down, you will not need GAP insurance DO NOT let them talk you into it. Extended warranty's can be a good thing to have, but they will try to rake you over the coals. A dealership will try to rake you over the coals no matter what. They are all blood sucking thieves and will do whatever necessary to take as much money as possible. A car dealership is like a lion's den, if you know how to handle them you will make it out unscathed. If you don't, they will rip you apart and you will bleed to death. I sold cars for a year when I was in a pinch for a job. I have nothing but utter disdain for all dealerships. Thieves, all of them. Dirty, rotten thieves.

There is a good auto loan calculator from Bankrate . com that is a very helpful tool.
Make sure they see you using the calculator, it will get them to take you serious. If the numbers you are putting in don't match up with their's, they are trying to rip you off.

[krantcents]

I never use the dealer financing! I am a member of a credit union and they beat the dealer rates all the time.