How do finance charges work on car loans?

I’m in the process of shopping for a new car and comparing car loan offers, but I keep hearing the term “finance charge” thrown around. I’m still not entirely sure what that means. How do finance charges work on a car loan?

Answer
That’s a great question! In short, a finance charge is the cost of borrowing money. Finance charges can quickly add up on a car loan, so they’re crucial to understand.
Lenders base finance charges on how much you borrow, your interest rate, and the length of the term. While some are variable, others are a fixed cost. Some standard finance charges include, but are not limited to:
  • Interest
  • Application or filing fees
  • Service fees
  • Appraisal fees
  • Credit report fees
Some consumers compare the finance charges to hidden fees but the lender typically has a legal obligation to inform you of these charges. They differ by lender and are negotiable, so reviewing them with your lender before signing is always a savvy move.
While shopping for a new car is exciting, the financial side is only one part of the process. Once you have found your new vehicle and figured out the finances, you also need a car insurance policy before hitting the roads!
If you want to make shopping for car insurance easy and have someone else take care of generating quotes, purchasing the policy, and completing all the paperwork and phone calls, download Jerry.
Jerry is an insurance comparison app that shops for low prices with over 50 different insurance companies for free. You can get quotes in seconds so you always get the best rate possible.
Jack Walsh
Answered on Nov 30, 2021
Jack is an insurance specialist and writer living in Buffalo, New York. He has a BA from Union College and worked as an insurance agent with Jerry before joining our content team. He enjoys using data and research to break down complex subjects and convey a story. In his spare time, Jack enjoys cycling, cooking, and exploring Buffalo’s beautiful waterfront.
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