Can You Finance Tax, Title, and License?
Navigating vehicle purchase costs? Learn whether to include tax, title, and license fees in your auto loan and what that means for your budget.
When purchasing a vehicle, the advertised price is one component of the total cost. Beyond the vehicle’s sticker price, mandatory expenses like sales tax, title fees, and license plate and registration fees are incurred. Buyers often consider whether these supplementary costs can be incorporated into a vehicle loan. Understanding these fees and payment options is important for managing the overall financial commitment.
Understanding Vehicle Purchase Fees
Sales tax is a percentage of the vehicle’s purchase price collected by the state. While the national average sales tax on a car is around 5.75%, rates can range from under 3% to over 8% depending on the state, and some localities may impose additional taxes. Some states may offer sales tax exemptions or reductions for trade-ins, meaning you only pay tax on the difference between the new car’s price and your trade-in value.
Title fees are for the legal document proving vehicle ownership. This is a one-time fee paid when the vehicle is transferred to a new owner. Nationally, vehicle title transfer fees range from $15 to $75, though they can vary based on factors like the type of asset and location. For instance, in Texas, the standard title fee is $33.
License plate and registration fees are required to operate a vehicle on public roads. They cover issuing license plates and registering the vehicle with the state’s motor vehicle department. While some states charge a flat fee, others base registration costs on factors such as the vehicle’s weight, age, value, or fuel efficiency. These fees can range, for example, from an average of $250-$480 in California to $27-$62 for a one-year registration in New Mexico, and are often recurring annually.
Including Fees in Your Auto Loan
It is often possible to include tax, title, and license fees within your auto loan. When financed, lenders add these fees to the vehicle’s purchase price, forming the loan’s principal. This avoids out-of-pocket payment at purchase.
The ability to include these fees in your loan depends on several factors, including the lender’s policies and your creditworthiness. Lenders evaluate a loan-to-value (LTV) ratio, comparing the loan amount to the vehicle’s cash value. A higher LTV, such as one exceeding 100% due to financed fees, indicates increased risk for the lender.
While some lenders may allow LTVs up to 125% or even 150% for borrowers with strong credit, others might have stricter limits. A higher credit score makes lenders more willing to approve loans that include these additional fees. However, not all lenders offer this option, and specific loan terms can vary.
Impact on Your Loan Terms
Financing tax, title, and license fees directly increases the total principal amount of your auto loan. A larger principal balance means that each monthly payment will be higher to cover the increased amount borrowed over the loan term. For example, a $1,000 increase in principal will result in higher monthly payments throughout the loan’s duration.
Furthermore, a higher principal amount leads to a greater total interest paid over the life of the loan. Interest is calculated on the outstanding principal, so financing more means you accrue interest on the tax, title, and license fees themselves. This can increase the overall cost of the vehicle beyond its initial purchase price. While convenient, paying interest on these fees means you are spending more money in the long run.
Alternative Payment Approaches for Fees
Buyers have the option to pay tax, title, and license fees separately, rather than including them in their auto loan. Paying these fees out-of-pocket can prevent you from paying interest on them over the loan term, saving you money in the long run. This approach reduces the total financed amount and, consequently, the overall interest paid.
These fees are due at the time of purchase or when the vehicle is registered. If buying from a dealership, they often handle the processing of these fees with the state. Common payment methods can include cashier’s checks, personal checks, or debit cards, and sometimes credit cards, though credit card payments may incur additional processing fees. When purchasing from a private seller, you pay these fees directly to the Department of Motor Vehicles (DMV) or state tax authority when titling and registering the vehicle.