Finance Charges On Auto Loans

The finance charge on an auto loan is the amount that the credit will cost. It includes the APR which is a percentage of the principal amount of the loan and any other fees that are in place for arranging the loan. The fees can also include late payment charges. The charge gets added to the amount borrowed and the borrower must repay the combined total of the charges plus the loaned amount, usually in regular monthly installments.

Finance charges can fluctuate and may depend on the amount of loan and the term agreed. There are many instances of people getting ripped off due to inflated finance charges. It is important for borrowers to understand exactly what charges apply to their loans in order to assess if they are fair charges or simply a mark up designed to increase their repayments. Dealer Reserve for example is a way for car dealership salespeople to add hidden finance charges onto a customer's loan agreement without disclosing the actual additions. The customer may not realize that some of the charges they are paying are going directly to the salesperson and that it would be cheaper for them if they went directly to a lending company.

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