Before you buy a car, you spend hours figuring out your budget, comparing makes and models, and researching reviews. After all that, you’re excited to sign on the dotted line and get behind the wheel! But before you part with your hard-earned cash, there’s usually a stack of paperwork to sign, at least if you wind up buying a car the old way opposed to the new way with Carvana, where a person can avoid bogus fees and complete the entire vehicle purchase process online – including the signing of important contracts.
However, if you bought a car the old way, it can be tempting to skim over these documents and sign them as quickly as possible. After all, if you negotiated the price and financing terms ahead of time, these documents just formalize the deal you’ve already made, right? In a perfect world, the paperwork will be in line with your expectations. But mistakes and misunderstandings sometimes happen. And once you’ve signed your vehicle financing contract, you’re legally bound to adhere to its terms. That’s why it’s so important to pay attention to what you’re signing.
While the title and format of your contract might vary, the contents are pretty standard. Here are some things to look out for.
The top of your form will have your name, address, phone number, and other identifying information. Double check this information is correct. You want to make sure the lender sends loan statements and other correspondence to the right address.
Sales and pricing information
Another section of your contract will include information on the vehicle you’re buying and overall sales price. The contract will break down the sales price to show exactly what you’re paying, including:
- Selling price of the vehicle: This is the price you negotiated with the seller. Make sure it agrees with your expectations.
- Fees: There are usually a variety of fees involved when buying a vehicle. Some may be negotiable, some are set by state law. If you don’t understand the fees shown on your contract, ask the dealer to explain them. Some common ones you may see are:
- Documentation or processing fee: This covers the dealer’s cost of paperwork. It usually runs between $100 and $400. You may be able to negotiate this down. Carvana doesn’t charge you a doc or processing fee.
- Destination fee or delivery charge: Manufacturers levy a charge on the dealer to ship cars from the assembly plant to the dealership, and the dealer passes this cost on to you. Look out for destination fees on used cars, unless the seller is actually delivering the vehicle to you.
- Advertising fee: This is another cost that manufacturers pass on to dealers and dealers pass on to consumers. You shouldn’t see this fee on your contract when purchasing a used car, but Carvana ensures that you’ll never have to pay an advertising fee on your purchase.
- Dealership fee: Some dealers tack on an extra fee. They might call it a “pre-delivery inspection,” or “dealer prep” fee. See if you can negotiate these down if you choose to not purchase with Carvana, which doesn’t charge a dealership fee.
- Security etching: Law enforcement and insurance companies encourage consumers to have their vehicle identification number etched into the car’s windows as an anti-theft measure. This makes your vehicle less attractive to thieves and may even get you a discount on your auto insurance. However, you can save money by doing it yourself with the help of a kit you can purchase online. Dealers may charge up to $200 – $300 for this service, while a DIY kit usually costs less than $50.
- Registration fee: Some dealers have an arrangement with the state Department of Motor Vehicles (DMV) for title and registration documents and can issue temporary tags and license plates. These fees are fixed by your state and can save you a visit to the DMV.
- Sales tax: Sales tax is set by state and local law. Some states calculate tax on the full price of the car, while others calculate tax on the difference between the price of the new car and your trade-in.
- Extended warranty or service contract: An extended warranty covers major repairs after the manufacturer’s warranty expires. An extended service contract may cover oil changes and other maintenance that doesn’t fall under the warranty. Whether or not you want this coverage is up to you. But before you agree to purchase the coverage, make sure you know what is and isn’t covered, where you’ll have to bring your vehicle for service, and whether there’s a deductible involved. The FTC has a more in-depth explanation of what to look out for.
- Other add-ons: This might include credit life insurance, disability insurance, pinstriping, rustproofing or undercoating, fabric protection, and paint sealant. Consumer Reports recommends avoiding all of these. They’re either not necessary or can be purchased elsewhere for less.
Once all taxes, fees, and other options have been taken into account, your contract should show your total cash sales price. Now your contract addresses how you’ll pay for it. There are typically three components:
- Trade-in allowance: If you’re trading in your current vehicle, make sure the trade-in allowance on your contract matches the price you agreed to with the dealer.
- Down payment: If you’re putting cash down, your down payment amount should be included in the contract. Again, make sure the amount on your contract agrees with your expectations.
- Financing: If you’re using dealership financing, your dealer should have quoted you an Annual Percentage Rate (APR). Make sure the APR on your contract agrees to the offer from the dealer. This section will also show you the term (expressed in months) and your monthly payment. To keep your monthly payment affordable, many consumers finance a car for 72 months or longer. But be careful about accepting such a long term loan. According to the FTC, these contracts often carry high interest rates. And since you’re paying off the car longer, you could end up owing more than the car is worth.
Carefully reviewing and asking questions about your contract will take more time, but it’s arguably one of the most critical steps in the car buying process. If you notice mistakes in the financing contract, now is the time to get them corrected. And whatever you do, never take possession of the car before finalizing your paperwork. You don’t want to find out later that your financing fell through and you’re forced to return the vehicle or sign new paperwork with less favorable terms.