the Cost of Auto Loans

$120 covers the "loan origination fee" and "gap insurance" for the vehicle we purchased. The gap insurance covers the difference betwen what is owed in financing on the vehicle and the blue book value in case the auto is wrecked.

We needed a newer vehicle last year and decided to get pre-approved for a loan through our financial institution so we could avoid a drawn out ordeal with "in-house financing" at the car dealership. We did not know which car dealership we would be using, but we knew the type of car we wanted and what our upper limit would be. In return, the bank granted us credit for the higher end of what we thought we'd use. Our purchase came in well below what we had asked for, so the loan was adjusted accordingly, with the extra $120 tacked on in fees.

It was nice to be able to go into a dealership and turn down their offers to find us credit. We knew we what we were able to buy and the approximate monthly payments before going. We didn't feel the pressure to consider something we might not could have afforded. The local bank (especially in a small town)is very concerned that they work for you and are not there to get you into a financial bind. The origination fee and gap insurance were a small price to pay for the peace of mind they provided. I now know that if my vehicle is involved in a terrible wreck, at least I won't have to pay anything (except the deductible) out of pocket. Since I average 30,000 miles per year on a vehicle, it wouldn't take long at all for my vehicle to be "upside down".

Contact your bank or credit union before you have to take out a loan and inquire what extra fees they require or offer. See if those fees must be pre-paid or if they're tacked on to your total amount financed. Ask if they can automatically take a set amount out of each paycheck to cover your payments rather than one lump sum a month. This way you will never forget or have to scrape to come up with a payment.