When you make a costly purchase, you might have to finance it. For example, are you hoping to purchase a vehicle sometime soon? If so, you might need to find an auto lending provider to finance your purchase. When you get the loan, the amount you finance will be more than the car's purchase price. Why is that? What other costs get added to the loan? Here is an explanation of how this works when buying a car with a loan.
The Agreed-Upon Price
Shopping for a car typically involves choosing a price first. You might choose a maximum amount to spend or a range. In any case, you might need to negotiate with the dealer for the price you will pay, as the dealer's asking price might be negotiable. When you agree on an amount, this will be the first amount to add to the total amount you finance.
The Taxes and Title
Buying a car always results in paying taxes, too. Every state charges a sales tax, and the rate varies by state. You can expect to pay taxes on the car, though. You will also have a charge for the title fees. When you buy a vehicle, they must change the title from their name to yours, and this costs money.
Costs for the Warranty
You might have the option of buying an extended warranty with the car. If you choose to buy the extra coverage, you will pay the full amount with your vehicle purchase. If you are using an auto loan, they will add the costs to your loan.
The Effects of Your Trade-In
If you trade your existing car in when purchasing a new one, this might affect your auto loan in one of two ways. First, if you owe more money on your existing vehicle than it is worth, you might have a deficit on your existing car loan. In this case, the lender must add the deficit to your loan. If your car is worth more than the amount you owe on the loan, they will deduct this amount from your new loan.
When the dealer gives you the total amount you owe for the vehicle, you can reduce the amount you finance by offering a down payment. You do not always need a down payment when buying a vehicle, but it is a wise move in most cases. If you have questions about auto loans and the costs, contact a lender that issues vehicle loans to learn more.