Complete Auto Loan Guide: APRs, Dealer Fees & Financing Rules
Master guide covering vehicle financing: interest rates (APR), state sales taxes, dealer documentation fees, down payments, trade-in equity, and loan terms.
By Sarah Jenkins, CFA
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Reviewed by David Vance, CFP
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5 min read
How Auto Loans Work
An auto loan is a secured loan used to purchase a vehicle, where the car itself serves as collateral. If payments are not made, the lender retains the legal right to repossess the vehicle.
Core Components of an Auto Loan
- Vehicle Purchase Price: The negotiated agreed price of the car before taxes and fees.
- Down Payment & Trade-In Equity: Cash or trade-in value subtracted from the purchase price to reduce total loan balance.
- Sales Tax & Dealer Fees: State sales tax plus dealer documentation fees ($200 - $800) rolled into the net loan balance.