With several charges and fees rolled into your car loan, it’s easy to forget how much you’re paying! Here’s everything you need to know about car loan origination fees and how to minimize them when taking a new auto loan.
While the most important thing you need to focus on when taking an auto loan is the APR, there are still additional costs. For one, processing the application takes a significant amount of time and effort. That is why lenders generally charge processing or origination fees on loans!
Unless you trust your lender completely, you should always keep an eye on the ‘hidden fees’ and miscellaneous costs mentioned in the loan application. This post will help you make sense of car loan origination fees.
What Is a Car Loan Origination Fee?
Origination fees are essentially a lender’s commission for processing and underwriting your loan application. Origination fees are common for all types of loans – mortgage, auto, personal – and are generally paid upfront at the time of accepting the loan.
Though processing fees are common for all types of auto loans, some lenders often waive/reduce them for borrowers with good credit.
Why Do Lenders Charge Car Loan Origination Fees?
Every car loan has paperwork to be sorted out from your and the dealership’s end. Some of the procedures involved in processing a loan include:
- Underwriting the loan (Checking your credit score and payment history)
- Preparing the documents from the lender’s side
- Any other due diligence that might be required
How Do Car Loan Origination Fees Work?
Car Loan Origination Fees can either be charged upfront as part of loan closing cost, deducted from the total amount, or can be rolled into the loan amount.
You should always look at how the car loan origination fees compare to the interest rate you get. A lower origination fee might look tempting on the offer document but won’t amount to much if you have a high APR. For long loan terms, it’s better you go for a low APR loan (even if it has slightly higher origination fees), as it will help you save thousands in the long run.
How Much Do Origination Fees Cost?
Typically, car loan origination fees aren’t supposed to be arbitrary. They should be clearly mentioned in the loan offer document. Though it varies based on the lender, they usually cost between 1-and 2% of the total loan.
Does a Good Credit Score Impact Origination Fees?
Yes, having a better credit score opens several doors when applying for a loan. Because of your good credit profile, lenders may be willing to waive or reduce the car loan origination fees. Ideally, a score above 670 is considered “good,” while 740 and above is considered excellent.
Are Origination Fees Negotiable?
Yes, car loan origination fees are usually not set in stone. Therefore, it is possible to negotiate with your lender and reduce it to a manageable amount. It also helps if you have a good credit score and payment history.
How to Minimize Car Loan Origination Fees
Looking to reduce your overall loan costs? Follow these 4 guidelines to minimize the cost of car loan origination fees and stop overpaying on your auto loan.
1. Shop around for the best loans: Instead of going to banks and credit unions, use a lending platform like Way.com to find and compare better deals. You can choose offers that give you low APRs exclude origination fees, and won’t charge you any ‘hidden’ charges.
2. Negotiate with the lender: If you’ve chosen a lender and are going to sign the agreement, read the documents carefully to see what you’ve been charged in origination fees. If it is too much, you can negotiate to reduce it to a manageable amount.
3. Refinance with a better lender: If origination fees have been rolled into your loan, you could be overpaying on your loan. Auto loan refinancing can help you close your current loan early and get a new one with lower monthly payments. You can also choose a lender who won’t charge you origination fees.
4. Ask for seller concessions: If you are looking to purchase a vehicle in a buyer’s market (i.e., when dealerships find it hard to find buyers due to lack of demand), you can ask your lender to waive the usual origination fees. Unfortunately, with new and used vehicle prices skyrocketing, you might have to wait to try out this option.
Additional Fees to Look Out For
Keep an eye out for the following miscellaneous fees that you could be charged:
- Registration fees: Based on the state you want to register the vehicle in
- Destination fees: Which will cover any transportation/shipping costs
- Vehicle Inspection fees: To ensure your vehicle meets the standards of vehicle ownership in a state
- Dealership fees: Miscellaneous fees to cover dealership costs
Frequently Asked Questions (FAQ)
Do Car Loans Charge Origination Fees?
Some auto loan lenders will charge you between 1-and 2% of the total loan as origination fees. However, it varies depending on the lender – some will altogether waive the processing fees or simply not charge you at all.
How Are Origination Fees Calculated?
Usually, lender origination fees will cost 1-2% of the loan amount.
What Is a Reasonable Auto Loan Origination Fee?
There isn’t one single number that can be considered ‘reasonable’ – it all depends on how much you borrow. The larger your auto loan, the greater will be your origination fee – typically 1% of the loan amount.
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