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Financing a Car: Are Taxes and Fees Included in Financing?

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author photo by Doug DeMuro

If you're thinking about buying a car, you likely know that the advertised price probably won't be the price you pay. That's because you'll have to add taxes and fees, and that means you might end up spending a few thousand dollars more than the price you were initially hoping for. So when it comes to financing a car, how do you account for taxes and fees? Are they rolled into your payment? Or do you pay them up front? It's a good question, and we have an explanation.

Usually Included

If you're financing a car through a dealership, taxes and fees are almost always included in the payment. That's because the finance amount is usually based on the car's out-the-door price, which includes all taxes, fees and additional extras, such as an extended warranty. That's why adding a dealer option will slightly increase your monthly payment, because it's rolled into the financing. It's also why, in many states, the dealer can get your license plates for you because they've collected the taxes you owe on the vehicle.

When It's Not Included

There are, however, times when taxes and fees aren't included in your vehicle financing. The primary example of this is when you've arranged your own financing, such as when you buy a car from a private seller or you receive an excellent interest rate from your bank and choose to use their services rather than a dealership's.

In many cases, taxes and fees can be included in this type of financing; you'll just have to plan for it. Show up at your dealer with a $25,000 bank check for a $25,000 car, for instance, and you'll run into some problems. But if you have the dealer tell you the out-the-door price before you get the bank check, you should avoid any issues.

If you buy a car privately, however, you generally won't be able to roll taxes and fees into the loan. That's because a private seller isn't set up to collect taxes for the state, and that means you'll usually be on the hook for these taxes when the time comes to register the car. In some cases, you might be able to ask your bank for a little extra money on the loan to cover this sort of situation, but they might not always provide it.

What About Leasing?

Most states treat the taxes on leased cars just like they do regular financing. That means you'll be able to roll the sales tax and other fees into the lease payment rather than pay up front. However, some states make you pay the full amount of a car's sales tax when signing a lease. This may seem like a big number, but just remember: You would've paid this figure anyway had you rolled it into your lease payments.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
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Financing a Car: Are Taxes and Fees Included in Financing?