A car loan can make buying a new vehicle more manageable by spreading the cost over several years. But when a dealer tells you an add-on will cost only a small amount more each month, it can become easy to overlook how that charge increases the amount you finance.
Here is what you should know about identifying those additional costs before you sign.
How a small monthly increase becomes a larger loan
The Consumer Financial Protection Bureau recommends considering the total cost of an auto loan rather than focusing only on the monthly payment. A seemingly negligible increase can add hundreds or thousands of dollars to the total amount you repay over the life of the loan. For example, an extra $30 each month on a 72-month loan adds $2,160 before interest, while financing that amount may also generate additional interest charges throughout the loan term.
Which add-ons can increase the amount you finance
Optional products can increase your loan balance when you agree to include their costs in the financing. Common examples include:
- GAP coverage
- Service contracts or extended warranties
- VIN etching
- Nitrogen or other tire-related products
- Protection packages and other dealer add-ons
The FTC advises consumers to understand each product’s price and consider its cost over the life of the loan. Before accepting the final terms, make sure you double-check what you are purchasing and whether the added expense suits your needs.
How to spot add-ons in your paperwork
Your buyer’s order and retail installment contract can help you determine whether additional charges increased the amount you agreed to finance. Check the buyer’s order for:
- The negotiated vehicle price
- Each add-on and fee
- The individual price of each product
Then check the financing contract for:
- The amount financed
- The APR and finance charge
- The monthly payment
- The total of payments
If a product or amount differs from what you discussed, ask the dealer to explain the discrepancy before signing rather than assuming the difference reflects a routine adjustment. Federal law also requires disclosures that identify key loan costs and terms before you finalize the transaction.
What to do before signing
Ask the dealer to remove anything you did not agree to purchase and provide revised paperwork. If someone says an add-on must accompany your financing, ask for an explanation and supporting documentation. GAP coverage and extended warranties generally remain optional.
Trace every dollar before you sign
If your final paperwork contains charges you did not authorize or understand, consider having an attorney review the purchase and financing documents with you. That review can help determine whether the dealer’s conduct raises a legal issue, whether the charges received proper authorization and what options may apply to your circumstances.