When you are buying a car, there is more than just a loan to consider. You need to remember that there are also tax, title, and license fees, or TTL. So, you may be required to bring additional money to the table, depending on who you purchase the car from.
If you are purchasing a vehicle from a dealership, these fees can often be rolled into your auto loan, but if you are dealing with a private seller or getting your loan from the bank, you will need to pay these fees separately. With banks, there may be certain terms and conditions that will keep you from having the TTL fees rolled into the loan, whereas private sellers do not have the authority to collect these fees. In this case, you'll have to pay the tax, title, and license fees when you visit the DMV to register the vehicle.
However, even with a dealer, you may still not be able to avoid an out-of-pocket cost.
Cost of Tax, Title, and License Fees
Tax, title, and license fees are unavoidable. They're a mandated payment that is dictated by many factors. Ultimately, the cost of these fees depends on the state you live in and a few other factors, but let’s break each fee down:
- Vehicle sales tax – A car’s sales tax is based on the tax rate where you live, which could also include city, county, and/or municipality taxes.
- Title fee – The title fee is a one-time fee that’s paid when the vehicle title is transferred to you.
- License fee – License (registration) fees depend on the state where you live. Some states collect license fees at a flat rate on an annual or bi-annual basis, and some states vary registration fees based on a car’s cost, weight, age, or fuel efficiency. It’s also possible that you could be charged a premium if you drive a specific type of vehicle.
Auto Credit Express Tip: To understand your state’s TTL fees and how they work, make sure you visit your state government site to read more about the laws in your state.
When Do I Pay Tax, Title, and License Fees?
When buying a car through a dealership, the dealer handles paying the fees and submitting the paperwork, so you don’t have to deal with your DMV or Secretary of State.
Typically, the best way to pay for tax, title, and license fees is in cash when you take delivery of your car at a dealership. Plus, when you pay cash for these fees upfront, you avoid having to pay interest on them – reducing the overall cost of your auto loan.
The only instance where a dealer can't take care of these fees for you is if you’re purchasing a vehicle from a private seller. In this case, you need to visit the DMV or Secretary of State and handle the paperwork yourself, which can be tedious and time-consuming.
If you can’t afford to pay the TTL fees upfront at the dealership, it’s possible the lender may allow you to roll them into the car loan. You don’t need the cash up front, but you end up paying interest on them over the course of your loan term, which increases your total cost in the long run.
The Loan to Value Ratio
How much you will pay really depends on your Loan-to-Value ratio or LTV. This ratio is determined by the value of your loan compared to the book value of the vehicle. This ratio is affected by your credit score. If your credit is great, let's say, 700, you should have no problem getting the TTL fees rolled into your payment. But if your credit is bad – around 500 – you will need to bring money to the table, not only to cover the fees but for a down payment as well.
Let's look at an example. If the vehicle you're looking at is $10,000, and the TTL is $750, the out-the-door price of the vehicle is $10,750. Borrowers with better credit scores typically get a higher maximum LTV, so if a borrower has a credit score of 700, they might get an LTV of 145%, or 45% over the book value of the vehicle. A borrower with a credit score around 500 is likely to be able to borrow less, say around 105% LTV.
The borrower with the better credit score can borrow up to $13,050, and the borrower with the lower score can only borrow $9,450. You get these numbers by multiplying the actual book value of the vehicle – in this case $9,000 – by the LTV. As you can see from this example, the borrower with the 700 credit score would be able to roll the TTL into their loan, and may not need a down payment. The borrower with the 500 credit score won't be able to roll the fees in and would need to bring $1,300 down just to cover the out-the-door price of the car.
In this equation, if the buyer has bad credit, the fees would not be covered and they would need to pay $1,300 out of pocket.
Of course, a trade-in may help cover some or all of the TTL fees. If you have a vehicle to trade in, there may be enough equity in it to pay for all – or a portion – of the fees.
Interest Costs will Rise
Before you decide to roll these fees into your loan, consider this: do you really want to pay interest on these fees? Once they are rolled into the loan, you will be paying interest on those amounts as well. Depending on your interest rate, you may be better off just paying the fees upfront.
At this point, you’re probably wondering: how much are the tax, title, and registration fees? Well, the tax is based on your state’s sales tax rate, and you can go to the National Conference of State Legislatures (NCSL) site to see title and license fees. But for the most up-to-date information, your best bet is to contact your nearest DMV office or Secretary of State.
When You Can't Wait
Here at Auto Credit Express, we want you to make the best decision for your situation. And the best way to do that is to have all of the information you need. If you need to buy that next automobile and can't wait until your credit has improved, we can help. Just fill out the free and fast online auto loan request form today and we will begin the process of finding you the dealer that can get you into the car you need!