How to revise your car loan agreement

The devil is in the details. A cliché, yes, but true — and potentially costly — when it comes to your auto loan contract.

Car loans at dealerships are marked up by more than $1,700, on average, according to car loan company Outside Financial’s 2018 Markup Index. The additional costs come from increased interest rates and additional products inserted into the loan agreement, explains Jon Friedland, co-founder of the company.

Additionally, Oren Weintraub, president of Authority Auto car buying concierge service in Tarzana, Calif., says he finds an error — intentional or unintentional — about 3 out of 10 times when reviewing contracts for automakers. clients.

To avoid overpaying and protect yourself from confusion or sleight of hand, carefully review any auto loan agreement. Whether you’re financing your car through a dealership or working with your bank or an online lender, follow these steps before signing on the dotted line.

Verify vehicle and personal information

“As basic as it sounds, you want to make sure you’re buying the right car,” says Weintraub. Be especially careful to check that the Vehicle Identification Number (VIN) matches the car you are buying, that your name is spelled correctly, and that your address and driver’s license number are correct.

Smoke extraction costs

Most car lenders say they don’t charge a fee. However, there may still be fees required to start the loan.

Outside Financial co-founder and president Sonia Steinway recommends telling the lender, [department of motor vehicles] and all taxes.’

Another approach, recommended by automotive site Edmunds, is to request an “out-the-door” price early in the process at the dealership. That way, Edmunds notes, “you’ll be weeding out those extras and dealing with them long before the contract phase.”

Separating legitimate fees from incidental fees, sometimes used to create additional profit for the dealership, can be tricky. Check Edmunds list of typical fees for each state.

  • State sales tax. It is usually a percentage of the cost of the car.

  • Documentation costs. As crazy as it sounds, the dealership is actually charging you to fulfill the contract. These “documentation fees” are capped by the laws of some states. However, in states where doc fees are unregulated, such as Florida, dealerships charge varying amounts, sometimes over $700.

  • Registration fees. A dealership will charge you the state registration fee, which is usually a percentage of the car’s value. For new cars, this cost can easily exceed $350.

Beware of supplements

Some lenders may include other products in the loan agreement that you did not request, such as extended warranties or gap insurance. Or dealers may install additional equipment on the car that is not clearly disclosed, such as custom wheels, running boards, or anti-theft devices.

Basically, they hope you sign the contract without spotting the bill and then commit to a higher monthly payment.

Once buyers get the deal and are hit with the extra cost, many just sign it because they think it’s too late to go back. But be aware that you can require the dealership to remove the extras and rewrite the contract for less.

“There is a purse of ancillary products that could be inserted,” Steinway explains. “Some of these products offer value, but only if you understand them, and only if you buy them at the right price.”

An easy way to spot these additional fees is to look for the section of the loan agreement where the lender or dealer can list products or fees, Weintraub says.

  • Extended Warranties. The most common additions for both dealers and independent lenders are extended car warranties (sometimes abbreviated in contracts to VSC for “vehicle service contract”).

  • Gap insurance. Another popular add-on sometimes inserted into contracts is insurance gapwhich covers the difference between the value of your car when it is totaled or stolen and the balance of your loan or lease.

  • Concession Supplements. Many dealerships include anti-theft devices, wheel and tire warranties and, a longtime favorite, paint and fabric protection.

Make sure the numbers match

Often, consumers begin the loan process by discussing terms with a loan officer or dealer. Therefore, when reviewing your auto loan contract, it’s important to make sure the numbers written in the contract match what the lender offered you verbally, Steinway says.

You can put the numbers in a car loan calculator to see if the numbers roughly match what you thought you had accepted. If they don’t, there is a problem. The lender or dealer may have extended the term of the loan, added extras, or inflated the interest rate.

  • The balance. This is how much you borrow for your car. The balance is the price of the car (plus taxes and fees), minus any trade-in credit and down payment.

  • Sales tax and registration fees.

  • The term of the loan. This is the number of months to pay it off, and it’s especially important because dealers and lenders often extend the term to make the monthly payment seem more palatable.

  • The annual percentage rate (APR). This includes the interest rate and represents the cost of borrowing money. When dealers arrange loans on behalf of car buyers, they sometimes mark up the interest rate by several points in compensation for this service.

Report any problems and talk to the lender

When reviewing your loan documents, take a pencil and circle any language you don’t understand and any fees or additions that weren’t discussed earlier.

Give the lender, or dealer, a chance to explain everything you’ve pointed out in the contract, Steinway says. But make sure you get an explanation that you fully understand, rather than just a run-of-the-mill non-answer.

And whether you’re in the back room of a dealership or on the phone with an impatient loan officer, don’t be pressured into signing something you’re not comfortable with.

While reviewing the loan deal is important, Weintraub says it’s the numbers that are the heart of the deal. Make sure you fully understand each charge.

Get the best deal possible

Experts agree that get pre-approved for a good loan before you go shopping for a car can help you get a better interest rate. Understanding the loan process and knowing what to look for in an auto loan agreement is key to ensuring you get what you bargained for — and the best deal possible.

If you are shopping for a car loan Where refinance your car, you are probably looking at several offers. For your convenience, get all quotes based on the same terms: loan balance and term. Only by making direct comparisons can you see the differences and find the best deal.

Friedland says the best defense at the dealership, or when reviewing loan offers, is knowledge. “Let’s face it, people are leveraged in this process in direct proportion to how prepared they are,” he says.

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