How to Review Your Auto Loan Agreement

Look out for extra fees or add-ons, and make sure the numbers match what you agreed to during negotiations.
Funto Omojola
By Funto Omojola 
Updated
Edited by Julie Myhre-Nunes

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Buying a car can be daunting. And even after you find your perfect car, there's a lot of important paperwork you’ll need to review — like your auto loan agreement.

Whether you’re financing your car through a dealer or working with your bank or an online lender, it's crucial to thoroughly review your auto loan agreement to avoid overpaying and to protect yourself from mistakes. Keep the following in mind before you sign on the dotted line.

Make sure the numbers match what you agreed to

Often, consumers begin the loan process by negotiating the terms with a loan officer or dealer, which means the terms aren’t written yet. Therefore, when you review your auto loan agreement, it’s essential for you to make sure the numbers written in the contract are what the lender verbally offered you.

Lenders are legally required to disclose all the key details of your loan terms correctly in written form before you sign. But mistakes can happen.

“Sometimes when things are transferred [to paper], some numbers can get confused, and that's when the errors can occur,” says Ronald Montoya, senior consumer advice editor at automotive research firm Edmunds. “I wouldn't automatically assign it as bad intent, but it can happen. And that's why it's important to pay attention to contract numbers.”

In addition to making sure personal information like your address and driver's license are correct, Montoya says to pay especially close attention to the following:

  • The balance: This is how much you’re borrowing for your car. The balance is the price of the car (plus taxes and fees) minus any trade-in credit and the down payment.

  • The term of the loan: This is the number of months you have to repay the loan.

  • The annual percentage rate (APR): This includes the interest rate and represents the cost of borrowing money. Be sure to pay particular attention to this because once you’ve signed and agreed to it, it can be difficult to get out of. Montoya advises that if you’re being charged an interest rate that you feel is high, you should say something before you sign the paperwork.

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Watch out for extra fees and add-ons

Lenders or dealers may also include fees that can add hundreds and even thousands to the total loan amount. Though some of these fees may be unnecessary, others are required to start the loan.

Separating legitimate fees from unnecessary fees can be tricky. These are some fees you can expect to pay:

  • State sales tax: This is typically a percentage of the cost of the car.

  • Documentation fee: This fee is what dealerships charge to process your paperwork and complete the sale. The fee is capped by law in some states. However, in states where the documentation fee isn’t regulated, dealerships charge varying amounts, sometimes upward of $600.

  • Registration fees: A dealer will charge you for the state’s registration fees, which are usually determined by a car’s value and weight.

Additionally, some lenders might include common add-ons and products in the loan agreement that you might not be aware of such as extended warranties, gap insurance and dealer-installed options that cost extra like all-weather floor mats, wheel locks or other additional equipment on the car.

Add-ons like extended warranties and gap coverage are not automatically applied but are typically offered to you at the time of signing the contract and are optional.

Once you get a loan contract and are potentially hit with extra costs, you might feel pressured to sign or think it’s too late to back out. But know that you can require the dealer to remove any unnecessary extras and rewrite the contract if you choose to opt out of something.

Flag any issues, and talk to the lender

As you review your loan documents, get a pencil and circle any language you don’t understand and any fees or additions that were not discussed earlier. Pay particular attention to anywhere you have to initial or sign, and if you see a fee that you don’t recognize, speak up about it, Montoya says. If you feel like you’re not getting transparent answers, consider taking your business elsewhere.

Getting preapproved for a loan before you go car shopping can help you lock in a better interest rate. Understanding the loan process and knowing what to look for in an auto loan agreement are keys to ensuring you get what you bargained for — and the best deal possible.

If you’re shopping for an auto loan or refinancing your car, you're probably reviewing multiple offers. To make this easier, get all quotes based on the same terms: the balance and loan length. Only by making direct comparisons can you see the differences and find the best offer.

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Finally, whether you’re in the back room of a dealership or on the phone with an impatient loan officer, don’t let yourself get pressured into signing something you're not comfortable with.

To avoid feeling pressured, Montoya suggests getting the loan details sent to you virtually to review — before you have to sign anything in person.

Bringing someone with you is also another great strategy because they can sometimes help spot anything you may miss.

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