Do Car Loans Cover Sales Tax and Other Fees?
Depending on the state you reside in, sales tax and fees such as title, tags, and doc fees can add up to more than $3,000 on a typical new car.
When getting a car loan, you need to make sure you have enough money to cover these additional expenses.
Car loans are not typically arranged to cover tax, title, and other fees, but you can include them in the loan - it all depends on what's called your L.T.V. (Loan to Value).
Loan to Value is the total amount a lender is willing to loan on a given collateral, expressed as a percentage. For example, if a lender assigns you a L.T.V. of 90%, that means they will lend you 90% of whatever the vehicle is worth. (Most lenders base the L.T.V. on the invoice price of the vehicle. Credit Unions typically base it on the MSRP)
If it's a car with an Invoice price of $20,000, a 90% L.T.V. will mean you get to borrow up to $18,000. You'll need to come up with a $2,000 down payment in addition to paying off the taxes and other fees.
If you have really good credit, some lenders will advance up to 150% of the vehicle's value, in which case you can roll your taxes and other fees into the loan.
If your credit isn't great and you don't have enough money to cover the tax and fees, you have two options:
1. Trade-in Allowance
If you have a trade-in, you can apply that value towards the price of the new vehicle. Let's say the new car is worth $20,000 and the lender will only loan you 75% of the value ($15,000). If your trade-in is worth $8,000 (and you don't owe any money on it), you can apply that towards the price of the new car, dropping the price you owe down to $12,000. The lender will still loan you $15,000 so you can use the extra amount to cover your taxes and fees.
2. Buy a Car with a Large Cash Rebate
Another way to include your taxes and fees into the loan is to buy a new car with a large cash-back rebate. If you can negotiate the price of the vehicle close to Invoice price (before applying the rebate) AND find a lender that will loan 100% of the value, then you can apply the rebate amount towards your taxes and other fees.
My Recommendation for Car ShoppersTrueCar No-Haggle, Edmunds Price Promise and Ryde Shopper are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
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About: Gregg Fidan
Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.