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Auto Loan, Reviews

The Best Auto Loans: 2020 New & Used Car Loan Rates

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The best auto loan for you depends on your priorities, but two common goals are to get the most competitive rate and the lowest monthly payment. That’s why longer-term loans are so popular right now, with more people stretching out new and used car loans over 60 months or more. Despite that, new and used car payments hit an all-time high in 2017, meaning that people are spending more than ever on their vehicle purchases. That’s why MagnifyMoney has compiled a list of the best auto loans in 2020. We know that with rising rates, you need as much help as you can get finding the best rates to secure the vehicle you want and need.

Overview of the best auto loans in 2020

Company name

Best for

Loan types offered

 

LendingTree

Comparison shopping auto loan rates - LendingTree is not a lender.

New, used, refinance, lease-buyout

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LightStream

Car buyers with good or excellent credit

New, used, refinance, lease-buyout

APPLY NOW Secured

on Lightstream’s secure website

Capital One

Car buyers with fair or poor credit

New, used, refinance

SEE OFFERS Secured

on LendingTree’s secure website

Carvana Auto Loan

Buying a used car online

Used

SEE OFFERS Secured

on LendingTree’s secure website

How we picked the best auto loan rates

Using information from LendingTree, we compiled auto loan data over a six month period spanning across 22 auto lenders. We analyzed the loan data by applicant credit tier, and whether the loans were to purchase a used or new car to determine 1) the lenders consumers chose most often, and 2) the lowest average APR offered by the lender.

A closer look at the best new and used auto loans

Start with LendingTree

With LendingTree, you can fill out one short online form, and there are dozens of lenders ready to compete for your business. Upon completing the form, you can see real interest rates and approval information instantly. Some auto lenders will do a hard pull on your credit and this is common with auto lending. It’s important to remember, multiple hard pulls will only count as one pull, so the best strategy is to have all your hard pulls done at one time.

LendingTree
APR

As low as
3.99%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Where people with good credit (680+) get the lowest rates on car loans

LightStream

LightStream is the online consumer lending division of SunTrust Bank. LightStream seeks to make the online lending process easy, so you may apply, be approved, sign your loan agreement and receive your funds all through your computer or mobile device — no papers to fill out or sign.

Why we chose Lightstream
Out of the lenders compared, borrowers with good and excellent credit were most likely to choose a loan with LightStream and receive the lowest APR. You can read our full LightStream review here.

New auto loan product details

  • APR: See table below
  • Terms offered: 24 – 84months
  • Loan amounts: $5,000 - $100,000

Lightstream New Auto Loan APRs

Loan Amount

Loan Term (months) *

24 - 36

37 - 48

49 - 60

61 - 72

73 - 84

$5,000 to $9,999

5.24% - 6.79%

5.84% - 7.39%

6.29% - 7.84%

6.59% - 8.14%

6.79% - 8.34%

$10,000 to $24,999

3.99% - 5.99%

4.44% - 6.24%

4.69% - 6.49%

4.94% - 6.74%

5.14% - 6.94%

$25,000 to $49,999

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.19% - 6.74%

5.39% - 6.94%

$50,000 to $100,000

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.14% - 6.69%

5.29% - 6.84%

As of 12/10/19. Includes a 0.50 point discount for autopay. Exact rates depend on your credit profile.

Used auto loan product details

  • APR: See table below.
  • Terms offered: 24 – 84 months
  • Loan Amounts: $5,000 - $100,000

LightStream Used Auto Loan APRs

Loan Amount

Loan Term (months) *

24 - 36

37 - 48

49 - 60

61 - 72

73 - 84

$5,000 to $9,999

5.24% - 6.79%

5.84% - 7.39%

6.29% - 7.84%

6.59% - 8.14%

6.79% - 8.34%

$10,000 to $24,999

3.99% - 5.99%

4.44% - 6.24%

4.69% - 6.49%

4.94% - 6.74%

5.14% - 6.94%

$25,000 to $49,999

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.19% - 6.74%

5.39% - 6.94%

$50,000 to $100,000

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.14% - 6.69%

5.29% - 6.84%

As of 12/10/19. Includes a 0.50 point discount for autopay. Exact rates are dependent on your credit profile and for purchases made from dealer. 

What we like

  • Fixed rate, simple interest fully amortizing installment loans. This means you won’t pay interest on your interest, and if you follow the payment schedule, your loan will be fully paid off at the end of the term.
  • No fees or prepayment penalties
  • No restrictions on the vehicles year, make, model or mileage
  • If you’re not 100% satisfied, Lightstream will pay you $100 (conditions apply)

Where it may fall short

  • Loans may not be used for a cash-out refinance
  • Secured loans may not be used for commercial vehicles
  • Vehicle must be classified as automobile, sport-utility vehicle (SUV), light-duty truck, passenger or conversion van
  • No phone support for customer service. Everything is handled by email

How to apply
Before you apply, keep in mind that you’ll need to:

  • Have good credit
  • Have sufficient income and assets
  • Agree to electronic records and signatures

Applying is done entirely online. You’ll provide:

  • Personal information. Name, address, phone, Social Security number, driver’s license, etc.
  • Employment information. Employer name and address, income and other financial assets
  • Loan information. Loan purpose, loan amount and term
  • Security information. Create a username and password
LightStream

APPLY NOW Secured

on Lightstream’s secure website

Where people with fair (620-679) & bad credit (500-619) get the lowest rates

Capital One Auto Finance

Capital One is a Fortune 500 company and a trusted name in banking and other financial services. In the fourth quarter of 2017, Capital One originated $6.215 billion worth of auto loans, making it one of the top five U.S. banks offering auto loans.

Why we chose Capital One
The most borrowers with fair and bad credit chose a loan with Capital One, and it came in second in terms of lowest average APR.

New auto loan product details

  • APR: See table below
  • Terms offered: 36 – 84 months
  • Loan Amounts: $4,000 - $40,000

Capital One new auto loan APRs

Credit

Loan Term (months) *

36

48

60

72

Rebuilding

7.45%

7.99%

7.99%

10.97%

Average

4.76%

5.16%

5.16%

6.42%

Excellent

3.99%

3.99%

3.99%

3.99%

Current as of 7/31/19

Used auto loan product details

  • APR: See table below
  • Terms offered: 36 – 84 months
  • Loan Amounts: $4,000 - $40,000

Capital One used auto loan APRs

Credit

Loan Term (months) *

36

48

60

72

Rebuilding

11.11%

12.55%

12.55%

13.98%

Average

5.90%

7.36%

7.36%

8.95%

Excellent

4.53%

4.54%

4.54%

5.30%

Current as of 7/31/19

What we like

  • Easy to pre-qualify online without a hard inquiry on your credit
  • Minimum monthly income required is $1,500 or $1,800, depending on your credit
  • 12,000 auto dealers work with Capital One

Where it may fall short

  • The best rates require excellent credit with 20% down on the vehicle
  • Vehicles must be 2006 or newer
  • Vehicles must have less than 120,000 miles
  • Dealers may charge additional fees, including document fees, dealer preparation fees and delivery charges
  • Maximum loan amount may not cover the cost of the vehicle you desire

How to apply
Apply using Capital One’s Auto Navigator. Enter your personal information including your Social Security number to get pre-qualified for an auto loan without affecting your credit. Then take your financing certificate to the dealership to shop for cars and make a selection. Once you’ve selected a vehicle, the dealer will have you fill out a credit application and you’ll finalize the paperwork for your vehicle purchase with the dealer.

Capital One

SEE OFFERS Secured

on LendingTree’s secure website

Carvana

Carvana specializes in helping you shop for a car online. It uses things such as 360-degree photos, free vehicle history reports, details and specs, ratings and reviews to provide you with the maximum amount of information.

Why we chose them
We looked at the three used auto lenders chosen most often in each credit tier, and Carvana was the only lender in the top three in every tier. That’s why we chose Carvana, even though other lenders offered lower average APRs on used auto loans.

Product details – Used auto loans only

  • APR: APR depends on credit history, vehicle type and down payment.
  • Terms offered: Up to 72 months.
  • Minimum loan amount: None
  • Maximum loan amount: Any amount, as long as it’s a vehicle listed on the Carvana website.

What we like

  • High level of detail on vehicles makes online shopping easy
  • Online application personalizes your shopping experience and doesn’t require a hard pull on your credit
  • You can return the vehicle within seven days and get your money back (Make sure you’re familiar with the limits on this policy before you buy)
  • All vehicles are certified with a 150-point inspection

Where it may fall short

  • Only available for used vehicles
  • Carvana is a car dealership, and you must select a vehicle through their website

Online experience
Carvana provides a lot of information about each vehicle. You won’t have to visit other sites to find specs or read reviews

When you fill out the online application, you’ll see a breakdown of your monthly payment, minimum required down payment and your APR, making your shopping experience truly personalized.
How to apply
You may get pre-qualified with Carvana without a hard pull on your credit by filling out the online application. After you complete it, you may start shopping for a used vehicle, and your payment, down payment and APR will be displayed for each vehicle. Keep in mind, with Carvana, you must purchase a vehicle in their inventory.

Carvana

SEE OFFERS Secured

on LendingTree’s secure website

Understanding the auto loans process

How do car loans work?

For the lenders we detailed above, you may apply for a loan online and receive personalized loan rates without a hard pull to your credit. So while you don’t see rate tables on certain lender websites, don’t be discouraged. If you’re serious, just fill out an application to see what you may qualify for.

Once you’ve completed the initial application, you’ll be able to shop for a vehicle knowing which type of financing you’ll likely qualify for.

Once you’ve selected a vehicle, you’ll need to submit a full application for the loan. This can be done online or with a dealer, if you’re working with one. Once again, most lenders are streamlining this process online, so for the lenders we discussed on this page, you may upload your documents using a computer or mobile device.

Once you’ve purchased the vehicle and completed your loan documents, you’ll just need to make payments. Making payments has moved online as well, and many lenders offer apps to help you manage your payments and loan information using your mobile device.

Tips when shopping for car loans

Here are some tips to help you avoid common mistakes and shop confidently for a car loan.

  • Set a budget. Everyone says it, but it’s not always easy to do. If you aren’t keeping a budget, here’s how to start in four easy steps.
  • Know how much you can afford. MagnifyMoney suggests you keep your total car expense less than 10% of your monthly budget. This is part of the 20/4/10 rule, which also says you should put down at least 20% and choose a maximum loan term of four years.
  • Save for a down payment. The amount of your down payment is likely to affect the interest rate you receive when financing your vehicle. So saving for a larger payment will help save you money and putting more down will lower your monthly payment, too.
  • Check your credit. You’re entitled to a free copy of your credit report from each of the three major credit bureaus every 12 months, and it’s easy to get your free credit score from a variety of sources.
  • Consider a co-signer. If your credit score is low or you have a limited credit history that needs improvement, having a co-signer with good credit on your auto loan could significantly lower your interest rate.
  • Shop around. It’s smart to get multiple rate quotes, so you may compare loans.
  • Get pre-approved. Shopping for a vehicle doesn’t make a lot of sense if you don’t know how much money you’ll have to work with. Shoppers have many options for getting auto loan quotes without a hard inquiry on their credit, but if you’re serious about buying a car, doing all your loan shopping in a short period of time will minimize the potential impact on your credit score, if loan applications result in a hard pull.
  • Talk to local credit unions. While banks and online auto loan companies offer easy-to-use online tools, don’t forget to talk to your local credit union to see if it has a more competitive rate.
  • Beware of extra fees. Keep in mind you’ll need to pay state taxes and title fees. In addition, dealers may charge fees, including document fees, dealer preparation fees and delivery charges. These fees will affect your APR if you finance them into your loan.
  • Check your paperwork. Everyone makes mistakes. When you get the final copy of your auto loan, check to make sure you got everything you were promised and there are no extra fees.

How to apply for an auto loan

From choosing the right car to getting approved for financing, this article will walk you through the complete online car buying process.

When you apply for an auto loan, it will help to have your documentation ready. This will include proof of identity, proof of income, credit and banking history and proof of residence. If you’ve selected a vehicle, you also want that information, including VIN, mileage, year, make and model.

While many online lenders advertise the loan process as being quick, be prepared for roadblocks. Sometimes a lender may request additional information or take time to verify information, and that may delay the process.

Be proactive! Once you’ve started the auto loan process, the lender will walk you through what’s needed. But that doesn’t mean you have to wait for your lender to get back to you. If the loan process has stalled, make a call or send an email to your lender asking what’s needed. In many cases, you’ll have an online login that will allow you to see your loan status, or take the next step online.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Ralph Miller
Ralph Miller |

Ralph Miller is a writer at MagnifyMoney. You can email Ralph here

Advertiser Disclosure

Auto Loan

How to Pay Off Your Car Loan Faster: Here’s What to Consider in 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

iStock

There are several ways to pay off your car loan faster, several of them without shelling out an extra dime. Auto debt not only accounts for about 9% of all consumer debt in the U.S., it’s growing: monthly payments are larger, terms are longer and APRs are higher for new and used cars than they were five years ago. Paying off your car as fast as possible frees up that money for other things.

How to pay off your car loan faster without paying more

The faster you pay off your car loan, the less you’ll pay in interest. But it may not always be possible to throw more money at your monthly payment. Here are some ways you may be able to pay off your car faster without paying additional money on the loan.

Refinance

This is the process of applying for a new auto loan to pay off your existing loan, hopefully with a better interest rate or term.

Pros. A refinance loan could help you pay your car off sooner and with a lower interest rate. Maybe your credit score has improved since your original auto loan — the best rates tend to go to those with the best credit. Average rates dropped at the end of 2019 with an average APR of 5.5% for a new car loan versus 6.0% at the same time in 2018.

Cons. Downsides should be few except for the time spent shopping for the best rate and any fees you might have to pay such as those to your state’s department of motor vehicles to transfer your car’s title to the new lender. These costs should be low, under $100.

Who it may be good for. An auto refinance loan may be a good option for you if:

  • You have a high interest rate and either your credit has improved since you signed for the auto loan or you’re not underwater on the auto loan, meaning you do not owe more on your car than it is worth.
  • If you do not face high penalties for paying off your current loan early.
  • You got the auto loan through a dealership, especially a “buy here, pay here” establishment. The average hidden interest rate added by dealers is 2.47% and “buy here, pay here” businesses are known for predatory lending practices.

How to do it. Call your lender to find out how much you owe and your APR. Refinance lenders usually ask for this information, so it’s good to have it on hand. Then you can look for the best auto refinance companies and find potential auto refinance offers.

LendingTree
APR

As low as
3.79%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Cancel any add-ons

Common auto loan add-ons include GAP waivers, service contracts or extended warranties, tire and wheel warranties and more — you may have agreed to these when you bought your car without understanding the full cost. Canceling them will decrease how much you owe on your auto loan, allowing you to pay off your car loan faster.

Who it may be good for. Anyone who has add-ons may be able to cancel them. The less you owe, the less you pay.

How to do it. Check your car contract, call your lender or call the dealership to see if any add-ons are listed on your paperwork. If there are any, find out what they are and consider canceling them to get a prorated return. You may need to fill out some paperwork to officially cancel the add-ons, but a few hundred dollars may be worth it.

Special note. If your car has a history of needing repairs, take that into consideration before deciding to cancel an extended warranty. If you are underwater on your car loan, think carefully before you cancel GAP, which is made to protect upside-down borrowers.

Make payments every two weeks

Instead of paying once a month, take your existing car payment and split it in half. Paying every two weeks means your loan balance is continually decreasing, which has the effect of paying less interest over the course of the loan.

Why it can be good. This is a way to essentially make an extra payment without forking over extra money.

Who it can be good for. By doing this, you’re not paying any more than you normally would, but it has the effect of making an extra payment a year, so it may be especially good for someone on a tight budget.

How to do it. Check with the lender to be sure you won’t run into any prepayment penalties. If not, make a half payment every two weeks instead of one full payment each month. You could automate your checking account to send the payment, or give permission to the lender to automatically pull the payment.

How to pay off your car faster with the most bang for your buck

Have extra cash to put toward your auto loan? While the methods above are good, the fastest way to pay off your car is to increase the amount you’re spending. Almost all of these tips involve making extra payments to the principal, the amount you owe on the car not including interest. But first check with your lender that you will not be penalized or charged a fee for prepaying your loan.

Make extra payments to the principal

Why it can be good. Auto loans have simple interest, which means that for every dollar you put toward the principal, you pay exponentially less interest to the lender.

Who it can be good for. Anyone who has an auto loan from a lender who doesn’t penalize early payoff or payments to principal.

How to do it. Call the lender and ask how you can make extra payments to the principal only. You should do this because extra payments not to the principal means you’re paying interest — all you’re doing is giving the bank money early. If you make payments to the principal, you’re not paying as much in interest, which is very good.

Round up

If you find it difficult to save money or you don’t have quite enough cash to make a whole extra payment, check out this round-up method.

Why it can be good. You could pay off your auto loan early without changing how often you make your payments.

Who it can be good for. If you have a hard time saving money, this is a good way to do so.

How to do it. If the lender will not charge a prepayment penalty, you have nothing to lose by doing this and you can do it in two ways:

  • Simply round up your monthly payment. For example, if your monthly payment is $350, round up and pay an even $400.
  • Use an app, such as Acorns, to round up what you pay on all of your purchases to the nearest dollar and then pay that money to the auto loan. For example, if you got gas for $15.30, the app would round the charge up to $16 and $0.70 could go into your savings account. A little goes a long way and by the end of the month, you may have $50 you could put toward your auto loan.

Avalanche versus snowball

We’re not talking about the weather; these are two popular methods used to pay off debts faster. The avalanche method prioritizes paying off high-interest debt first. The snowball method involves paying off your debts starting with the lowest amounts. You can read about more debt payoff methods here.

Why it can be good. These are methods that could help you pay off all your debts, not just your car loan.

Who it can be good for. If you have multiple loans or debts, these methods may help you organize them and pay them off.

Snowball method: how to do it. This is a three-step pattern that should allow you to “snowball” your money to pay off your car loan faster.

  1. Look at your loans and rank them from lowest to highest.
  2. Then focus on that smallest loan, paying it off as quickly as you can with any extra cash available while making minimum payments on your other debt.
  3. Once it’s paid off, congratulations! You no longer have that payment to make. Choose another loan and repeat the process, using the money you would have paid on the loan you paid off.

Avalanche method:how to do it. This method prioritizes debt with the highest APR. For example, if you’re paying a higher interest rate on credit card debt than your car loan, you may be better off using any extra cash to pay that down first.

  1. Look at your loans and rank them from highest APR to lowest.
  2. Determine how much extra cash you can put toward the debt with the highest interest while making minimum payments on your other debt.
  3. Once it’s paid off, roll the money you were using to pay down that debt into the next one.

Windfalls

Regular extra payments may not always be realistic for your budget, but if you get any money outside of your budget that you didn’t count on, using that money as one-time extra payment toward the principal could really help.

Why it can be good. Any “windfalls” you have, such as a tax return, a refund, a bonus, a big tip or a pay raise, can be put toward the principal on your auto loan.

Who it can be good for. If you were not counting on the windfall, the extra money you got is just that — extra money. By using it as a payment to principal on your auto loan, you’ll save more money because the less you owe, the less interest you’ll pay.

How to do it. It might take some self-control, but use the windfall cash to pay the auto loan. The sooner you’ll pay it off, the more money you’ll have later to spend on things you’ll enjoy.

Make extra income

If your regular paycheck isn’t able to stretch any further, consider a side hustle and put the earnings toward your auto loan.

Why it can be good. A part-time job a few hours a week could add up to enough cash to make a significant dent in what you owe.

Who it can be good for. Anyone with some extra free time may be able to find a part-time job, temp work, freelance assignment or other gig.

How to do it. Depending on what you’re willing and able to do, you could sign up at a temporary work agency, look on job sites and/or talk to people you know about any job opportunities. Just remember to spend the money you make on paying off the principal of the auto loan. You can check out 15 legitimate places that will pay you to work from home and 5 ways to make extra money that don’t take much time.

Remove extra expenses

What are you willing to cut out of your budget or give up to pay off your car loan faster? Again, every bit helps, if the extra cash goes toward the principal of your auto loan.

Why it can be good. If you aren’t willing or able to make more income, spending less can be an equally good option and, as a bonus, you can keep doing it even after your car is paid off and save the money.

Who it can be good for. Practically anyone could do this.

How to do it. Take a look at your credit card statement or write down what you buy so you can see your spending habits in black and white. Then, decide what you could cut out or possibly get a better deal on — it might add up to more than you think. Maybe you could eat out once a week instead of every day. Maybe you could find cheaper auto insurance. Then apply that savings to your auto loan principal.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at [email protected]

Advertiser Disclosure

Auto Loan

Dealer Fees to Know When Buying a Car in 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Getty Images

Don’t pat yourself on the back too early if you’ve just negotiated a great price on a new car. No, you’re not done yet — not when auto dealers can add thousands of dollars in the form of fees and products to the price of that new car, truck or SUV.

After all, there’s a reason why the term “sticker shock” comes from the auto dealership world. The good news? You don’t have to take onerous dealer fees lying down.

Sure, there are some new vehicle fees you’ll have to pay. There’s no getting around destination charges and fees that may be required by your state or county, such as title and registration costs. There are, however, good reasons to steer clear of — or negotiate — dealer add-ons such as extended warranties and GAP insurance. This story will help you understand the differences between fees you’ll have to pay, what’s negotiable, and fees you should avoid at all costs.

The auto dealer fees you must pay

You’ll see these fees on your final auto purchase bill and there’s no way around it – you have to pay them:

Destination fee

New vehicles don’t drive themselves to dealer lots (although that day may be coming).

For now, the auto manufacturer delivers the vehicle to the dealership and there’s a fee to be paid for that — one that you, the buyer, have to pay. Expect to pay hundreds, or as much as $1,000-plus, for the mandatory destination fee.

You’ll see the destination fee listed on the window sticker and there’s no point in negotiating it with the dealer, though it should be noted that some manufacturer destination fees are higher than others. You should read the sticker carefully to make sure the dealer is keeping mandatory destination fees separate from negotiable “delivery” fees. These so-called secondary destination fees, such as delivery inspection or dealer preparation fees, are negotiable. We’ll discuss them in more detail later.

Title, tag and registration fees

These are also mandatory, this time by your state or county. These fees funnel through the dealer, typically to your state’s department of motor vehicles, stamping you as the owner of your new vehicle and pays for your temporary tags that get you roadworthy.

Expect to pay as much as $250 to register and title your car, dependent on the state where you reside.

Documentation fee

Another “must pay” fee, the documentation fee is the fee the dealer charges for handling all the red tape and generating the administrative documents needed to process your new car acquisition.

You’ll see this fee in advance on your new vehicle contract and, depending on your home state, the fee can cost between $100 and $500. Some states cap the fee. You have to pay this fee, but there’s no rule that says you can’t ask the dealer to lower the price of the vehicle by the exact amount of the documentation fee. Learn more about how to negotiate car price.

Sales tax

In most states, you’ll need to pay a sales tax on your new car, truck or SUV, but the amount charged not only depends on the state where you reside, it also depends on whether your state charges for the full price of the vehicle, or the total price minus the value of any trade-in vehicle that was included in the deal.

If you purchase your vehicle out of state, you’ll pay the sales tax when you receive the vehicle and you register the vehicle in your state of primary residence.

Your sales tax depends on the tax charged by your state, but sales tax fees can generally range from 3% to 9% across the U.S., including county and local sales taxes. Many dealerships will roll sales tax into the title and registration fees we discussed earlier into one TT&L (tax, title and license) fee. Some dealers say to expect to pay between 8% and 10% of the sales price in taxes and fees. This rule of thumb applies to new and used cars.

How much car can you afford? This story might help.

Vehicle inspection fee

A new vehicle must pass certain inspections before it can be sold, based on the standards and criteria mandated by the state where the vehicle owner resides.

The fee, which is paid for by the dealer and passed on to the customer, doesn’t amount to much (about $7 to $30 per vehicle, dependent on your state.) The low fee isn’t really worth the trouble of negotiating it off of the total car price, but it is a fee that has to be paid.

These auto dealer fees should be avoided, contested or closely considered

You may see these auto dealer fees on your new vehicle contract but in most cases, you can avoid them, or at least contest them.

Advertising fee

You might think that it’s up to the dealership to pay for its own advertising and promotional costs, but you’d be wrong. The fact is, an advertising fee can appear on your new car invoice listed as a component of the vehicle’s manufacturer’s resale price or it can appear on your contract as a separate cost.

You can contest this fee and negotiate directly with the dealer — it’s not mandatory. If you don’t, you may pay several hundred dollars for the fee.

Extended warranty

Technically a product, an extended warranty covers any significant repairs needed on the vehicle after the original manufacturer’s warranty expires.

You don’t have to pay for an extended warranty, so feel free to avoid it altogether.

If you change your mind, and decide that an extended warranty is worth the cost, you can also go back to the dealer and buy the warranty later, but before the original warranty expires. The cost of an extended warranty isn’t cheap — anywhere from about $1,000 to several thousand dollars — but compare that with the cost of paying $4,500 for a new engine after the original warranty expires.

Dealer preparation fee

Often, auto dealers will charge a dealer preparation fee for cleaning up the car for you before you drive it off the lot. There is absolutely no need to pay this fee, which can range from $100 to $400.

Think of the fee this way — why should you pay extra for a fee to clean up a new vehicle that you just paid $35,000 to purchase? Shouldn’t the car appear clean, shiny and free of any problems at closing? Take the mindset that, yes, it should, and fight the fee accordingly.

Rustproofing and undercoating fee

Dealers will also try to stick you with so-called “treatment” fees that protect against Mother Nature and rocky roadways. The fee, which can cost around $800 to the dealer, aren’t really necessary in this day and age, as manufacturing technology has provided better protection for undercarriages and vehicle exteriors.

The dealer may also charge for other “appearance” packages including window tinting and tire and wheel warranties. These are also optional, so consider each one carefully, including cost and how important they are to you.

GAP insurance costs

In some cases, buying GAP insurance if you’re buying a new vehicle and want to add extra protection may be a good idea — it can cover the “gap” between an auto insurance claim payment and the amount of money owed on a heavily damaged or destroyed vehicle.

The thing is, you don’t have to buy it from the lender or dealer. In doing so, costs can be as high as $700 or more and is rolled in to your car loan, which also includes interest paid on the total loan, boosting the GAP insurance price up higher. Better to shop around among insurance companies who’ll likely offer you a better deal and cut out the dealer altogether from GAP insurance.

VIN etching fee

Your dealer may also try to sell you a theft-protection tool called vehicle identification etching, or “VIN” fee, which covers the cost of etching your VIN on the vehicle’s front window to thwart auto thieves.

While it’s always a good idea to protect your vehicle anyway you can, there’s no reason to have the dealer do the etching for $200 or more, when it only costs them $25 to do the job. A mechanic can do the job for much less. Some counties will offer the service free, so check with your local government office.

Stand your ground

When you’re in the throes of love for that brand-new vehicle you just purchased, it’s easy to gloss over fees and extra costs that dealers love to charge to pad their bottom line.

Don’t fall for many of those fees. While some extra costs are mandatory, there are plenty of new car dealer fees than can and should be avoided.

Stand your ground and use the tips above to make sure you’re not paying more than you should for your new car. Dealers also love to pad your APR, so in addition to the fees we described here, don’t make these common mistakes when shopping for an auto loan. Before heading to the lot, research the best auto loan rates.

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Brian O
Brian O'Connell |

Brian O'Connell is a writer at MagnifyMoney. You can email Brian here