Buying a car is an exciting step – but it can also be an expensive one. It’s no surprise, then, that an estimated 90% of Australians choose to finance their vehicle purchase through a loan. With plenty of car loan options available, you’ll want a loan that’s transparent without making you read through fine print to understand the true cost.
The interest rate on your car loan is one of the most important figures to be aware of – but it’s not the only one. Knowing what fees to expect when purchasing a car can help you manage your money and avoid “surprise” costs that can quickly add up.
If you require the services of an expert car loan finance broker, give us a call on 13 FIDO (that’s 13 34 36) or find out more on our How it Works Page.
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Why do lenders charge fees?
Car loan fees are a way for lenders to generate income and cover the costs incurred in managing the loan throughout its term. This can include administrative tasks, credit checks, and legal services.
It’s important to shop around as fees vary by lender and the specific product you choose. Some lenders may offer low – or no-fee options, while others add additional charges from early repayments to missed installments.
But don’t worry, your Fido Finance broker will explain your fees (if any) when comparing your options, so you can confidently make an educated (and money-smart) decision.
You can incur out-of-pocket fees throughout your loan’s life, and these are typically associated with specific behaviours, including:
- Pre-determined (e.g. upon establishment)
- Additional features (e.g. redraw facility)
- Discourage behaviours (e.g late payments)
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What type of fees can I expect as a borrower?
Upfront costs: fees payable at the start of your loan
You’ll typically encounter these fees when taking out a car loan, and they should be factored into the initial expense of purchasing a vehicle.
Establishment fee
The establishment fee, also known as an application fee or start-up fee, is a one-time payment charged to cover the administrative costs of processing your loan application. This fee is typically added to your loan principal, meaning you’ll be paying interest on it over the life of your loan.
AVERAGE FEE RANGE: From $100 to $600
PPSR fee
The PPSR is a one-time charge that covers the cost of registering the security interest on your vehicle in the Personal Property Securities Register (PPSR). This fee applies specifically to secured car loans, where your vehicle serves as collateral for the loan. This helps protect your interests, especially if you’re buying a used car.
AVERAGE FEE RANGE: $5 per registration
Ongoing costs: fees payable during the loan term
These are the fees you may encounter during your loan term. Some ongoing costs can be sidestepped with a bit of planning.
Account management fee
This is a recurring fee your lender may charge monthly or annually throughout the life of your car loan. It is designed to cover the lender’s administration and operational costs, including account maintenance, payment processing, and customer support.
AVERAGE FEE RANGE: $5 to $15 per month
FIDO SAYS: Be sure to compare account management fees carefully when examining car loans. $10 per month in account fees might seem small compared to your principal loan amount, but these fees can add up over the life of a loan. $10 a month on a 5-year loan means you’re paying $600 in account management fees alone.
Statement fee
You are charged statement fees for receiving paper statements of your loan account or for requesting additional paper copies of your loan documentation. Many lenders offer free electronic statements online, which is an easy way to save money (and help save trees!).
AVERAGE FEE RANGE: $2 to $5
Late repayment fee
You incur late payment fees when you fail to make your scheduled car loan repayments on or before the due date. This fee serves as a penalty and is typically added to your next repayment to cover the administrative costs associated with managing overdue accounts. Setting up automatic payments or reminders can help you avoid this charge.
AVERAGE FEE RANGE: $10 to $35
Redraw fee
Some car loans come with a redraw facility, which allows you to “redraw” or access any additional funds you’ve already paid into your car loan outside of the regular ongoing repayments. You can dip into funds to cover urgent costs, such as mechanical issues with your vehicle or bills that need to be paid immediately. Some car loans come with a minimum redraw cap, so it’s worth shopping around if you’re looking for redraw flexibility.
AVERAGE FEE RANGE: $20 to $50 per transaction
End-of-loan costs: fees payable when finalising your loan
These are the fees you may encounter when paying off your car loan. Knowing what to expect before your loan term ends can help you identify and minimise hidden costs.
Early repayment fee
Early repayment fees may apply if you repay the car loan in full before the agreed loan term ends. For example, let’s say your loan comes with a five-year term. If you pay off the loan in the fourth year, your lender may charge an early repayment fee to offset the interest revenue they’ll miss out on in future repayments.
FIDO SAYS: Make sure the numbers work for you. Paying off a loan early feels great, but calculate whether your early repayment fee is more or less than the interest savings you’d enjoy. If the early repayment fee is greater than the total interest costs you owe over the life of your loan, you may be better off sticking with regular monthly payments.
AVERAGE FEE RANGE: Can be a fixed charge (e.g. a few hundred dollars) or a percentage of the remaining balance (e.g. 3% of the outstanding amount)
Balloon payment
Balloon payment loans let you make lower monthly repayments by deferring a portion of the loan. This deferred amount – known as the balloon payment – is the final lump sum payment that you make at the end of your loan term. A balloon payment means your ongoing repayments will be lower, but you’ll likely pay more in interest over the life of your loan.
Learn more: Car balloon payments explained (with real examples)
AVERAGE FEE RANGE: Can range from 15% to 50% of your loan amount
Discharge fee
A discharge fee is a one-off fee charged by the lender to cover the administrative costs of closing your loan once it is fully paid off. This fee also covers the lender’s process of releasing the security interest in your car (meaning the vehicle is 100% yours – congrats!). Loan discharge fees vary depending on when you pay off your loan. For example, within the first 12 months, after the first 12 months but before the end of the loan term, or at the end of the loan term.
AVERAGE FEE RANGE: Can range from $20 to $150 and up
How much do car loan fees cost?
|
Fee type
|
Average range
|
|---|---|
|
Establishment fee
|
$100 to $600
|
|
PPSR fee
|
$5 per registration
|
|
Account management fee
|
$5 to $15 per month
|
|
Statement fee
|
$2 to $5
|
|
Late repayment fee
|
$10 to $35
|
|
Redraw fee
|
$20 to $50 per transaction
|
|
Early repayment fee
|
Fixed or % of remaining balance
|
|
Balloon payment
|
15% to 50% of your loan amount
|
|
Discharge fee
|
From $20 to $150 and up
|
How to minimise car loan fees
The excitement of buying a new car comes with careful consideration, as loan fees become part of the overall cost. By the time you factor in the extra costs in this article, any interest rate savings can be swallowed up and leave you stuck with a deal that’s worse than you thought.
Whether you’re a first-time car buyer or looking to upgrade your current vehicle, minimising car loan fees comes down to speaking with the right experts. While banks and car dealerships may be restricted in their loan products, car loan brokers can help find financing options without extras like monthly account fees or early termination fees.
At Fido Finance, our award-winning team can help you secure the best deal on your next car purchase, save maximum interest and minimise lender fees so you can spend less time worrying about hidden costs and more time enjoying the open road.
Chat with a car broker to understand your financing options or call the team at 13 34 36.
