Buying a car is the second-largest purchase most people make in their lifetimes, the first being a home. With car prices rising, it's no longer realistic for car buyers to pay cash for new or even used cars. As a result, auto loan debt is growing and car shoppers forget that budgeting for a car purchase isn't all about the car's MSRP. We tell you what you can expect to pay upfront, before the monthly payments even start.

Down Payment

used car price
Plan for a down payment of at least 10% for a used car and 20% for new.

A down payment isn't always required for an auto loan, but it may be a necessity for car buyers with compromised credit. A down payment increased the likelihood of car loan approval for buyers that may otherwise have trouble securing auto financing. Even car buyers with good credit should consider a substantial down payment in order to keep interest rates low and reduce the total amount financed.

The down payment will depend on the vehicle you choose and it's ultimately your decision how much you will put down, but the recommended down payment (which some lenders may require for borrowers with bad credit) is 20% for a new car and 10% for a used car. Looking at the average new car price of $36,000, the recommended down payment is $7,200. For the average used car price of $20,000, a 10% down payment comes to $2,000.

Average Used Car Recommended Down Payment: $2,000

Origination Fees

auto lender giving keys to buyer
Origination fees are essentially a lender's commission for issuing the car loan.

Sometimes referred to as acquisition fees, origination fees are the costs that your lender charges you upfront for issuing the loan. You may think "isn't that what interest is for?" but interest is strictly the cost you pay to borrow money. Origination fees can be considered a lender's commission since they cover the work done by the lender to process the loan for you (paperwork, number crunching, etc.).

These fees can either be charged as a flat fee or a percentage of the total loan amount. Origination fees vary from lender to lender, and they typically range from 1-2%. If you take out a loan for $20,000 and the origination fee is 2%, you'll pay $400 up front. Origination fees may be negotiable and some lenders even waive them completely, so you should get multiple car loan offers to compare rates. Remember to take a comprehensive look at your finance offers including total interest alongside the origination fees. A loan offer with higher interest rates but no origination fees can cost you thousands more than a lower interest loan with a one-time fee. 

Average Origination Fee for a Used Car: $400


car loan add-ons
GAP insurance and extended warranties are two unexpected costs when financing a vehicle.

You have likely budgeted to finance the cost of your vehicle plus interest, but the dealership's F&I office has other plans. They will offer you add-ons that can be rolled up into your car loan or that you can pay for up front. These include items such as GAP insurance, extended vehicle warranty, and credit insurance protection. Most of these add-ons are optional, but some lenders may require you to purchase GAP insurance to cover the difference between your loan and the value of the car if it is totaled or stolen before you pay it off.

Optional add-ons such as extended warranties (costs can range from $1,000-$3,000) are usually better to pass up at the dealership. Most buyers never use them anyway, and you'll avoid adding thousands of dollars to your vehicle purchase. 

Average Extended Warranty Cost: $1,000-$3,000

Average Gap Insurance Cost: $700/year

Negative Equity Financing

trading in a car
Trading in a car you're underwater on? It's in your best interest to pay the difference. 

This financing expense won't apply to every car buyer, but if you're upside down on your current auto loan and you're forced to trade in the vehicle, you should factor in the negative equity fees. If you plan to trade in with negative equity, you will be presented with two options: pay off the difference between the trade-in value and your loan balance or roll up the negative equity into the new car loan.

The first option, which is an out of pocket expense, is the safer route because rolling up negative equity from a previous loan into a new one can kickstart a cycle of debt that continues to build up. Imagine you still owe $10,000 on your vehicle, but you're only offered $7,000 as the trade-in value. You can choose to pay $3,000 out of pocket to get a clean start for your new car loan. 

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