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Understanding Your Car Loan Agreement

You’ve successfully negotiated the purchase of your new car. Congratulations! Owning a car is a major source of pride and accomplishment for most Americans, and if you live in an area without reliable public transportation—a great convenience too.

Before you can lay claim to that shiny new (or new to you) car, however, there will be paperwork—especially if you are planning to seek financing. Mistakes can happen, and part of the responsibility for avoiding them lies with you. Make sure you understand everything that appears on your loan document, especially your monthly payment amount. Review the details carefully and be sure to ask for clear explanations that make sense to you before signing. Here’s a look at what to expect as part of your contract:

  • Vehicle Identification Number (VIN). Yes, we realize this sounds obvious, but make sure that the car you chose is actually the same one being sold to you. The VIN is the unique identifier for every car, located below the lower left corner of the car’s windshield. Make sure that the number on the contract is identical to the one that appears on the vehicle.
  • State sales tax. Don’t forget about sales tax! The amount will vary from state to state and can even vary city to city. In Colorado, for example, taxes will run at about 11 percent, adding significantly to the price of your car. Fortunately, it can be included in your financing, so you might not feel the impact as much.
  • Vehicle registration fee. The state charges you a fee to register the car and issue your license plates. These can vary depending on the cost of the car you are purchasing, so a pricier car can result in higher fees.
  • Documentation fee. This is the amount the dealer assesses to cover the costs of facilitating the loan. It’s a good idea to review this figure with your finance rep to make sure it passes the “reasonableness” test.  Unlike many dealers and other vendors, RefiJet does not charge customers any fee for their service to facilitate a loan.
  • Loan terms. Review the terms carefully to understand exactly what you will owe. Make sure the interest rate, length of the loan and items included match with what you’ve been promised. Also, check on the rules for prepayment, late fees and other possible penalties.
  • Other charges. Your loan may include costs for extras such as an extended service contract or GAP. Take the time needed to make sure that what appears on the loan contract matches your verbal agreement.

When reviewing your loan contract, don’t let high-pressure sales tactics dissuade you from asking questions! You should be clear on every line item listed and it should all fit together within the context of your discussions with the dealer. Also, keep in mind that it’s always a good idea to have a knowledgeable person with you when it comes to signing on the dotted line.