Buying a Car: Get a Fair Loan and Avoid Dealer Traps

The loan payment is only part of what a car costs. Before you shop, add up everything you will pay each month. Then check that the total fits in your spending plan after rent, food, and savings.

• Insurance. DC, Maryland, and Virginia all require car insurance. Since July 1, 2024, Virginia no longer lets drivers pay a fee instead of buying insurance. Get insurance quotes before you choose a car. The price can change a lot by car model and ZIP code.
• Taxes and fees. You pay a tax when you title the car. In 2026, Maryland's titling tax is 6.5% of the price for most vehicles. In Northern Virginia, counties and cities such as Fairfax County also charge a car tax every year.
• Gas or charging, tolls, and parking. Think about your commute, a parking permit or garage, and toll lanes.
• Maintenance and repairs. Oil changes, tires, brakes, and inspections. Older cars often need more repairs.

With a pre-approval, a bank or credit union reviews your application and tells you how much it will lend and at what rate, before you choose a car. Then you know your budget, and you can tell if the dealer's loan offer is better or worse.

1. Check your credit reports for free and dispute any errors. See Read your credit report.
2. Apply at two or three lenders, such as your bank and a credit union. The CFPB says to keep these credit checks within 14 to 45 days of each other, so they count as one inquiry.
3. Compare the offers by APR, loan term, and total of payments, not just the monthly payment.
4. Decide the highest total price you will pay, and write it down.
5. Bring your best written offer to the dealer, and ask the dealer to offer a lower rate.

When a dealer arranges your loan, the rate is often the lender's rate plus extra interest that pays the dealer, the CFPB explains. You can ask whether there were other offers with lower rates.

No Social Security number? Ask banks and credit unions if they accept an ITIN for car loans. Some do. Be careful if a dealer tells you that no one else will lend to you. Check for yourself first.

Some dealers mix the car price, your trade-in, and the loan together, and talk only about the monthly payment. This makes it hard to see what you are paying. Agree on each part separately, in this order:

1. The price of the car, including all dealer fees.
2. The value of your trade-in, if you have one.
3. The loan: APR, term, and total of payments.

You can negotiate the price, the trade-in value, the APR, add-ons, and dealer fees such as document fees. You cannot negotiate taxes, title, and registration fees set by the government.

Dealer visit checklist

• I have my pre-approval and my highest price in writing.
• For a used car, I read the Buyers Guide sticker on the window. It says if the car is sold "as is," with no dealer warranty, or with a warranty.
• A mechanic I trust inspected the car before I agreed to buy it.
• I said no to add-ons I do not want, such as a service contract, window etching, or GAP insurance, which pays what you still owe beyond the car's value if the car is stolen or destroyed.
• If I owe more on my old car than it is worth, I checked that this amount is not hidden in the new loan.
• Every blank space in the contract is filled in, and the numbers match what we agreed.
• The loan is final, and I have signed copies of everything before I drive away.

In many families, a relative with good credit is asked to cosign. A cosigner is not just a reference. You promise to pay the loan if the borrower does not.

• You may have to pay the full amount, plus late fees and collection costs.
• In many states, the lender can collect from you without first trying to collect from the borrower.
• The loan shows on your credit report. Late payments can hurt your credit, and the debt can make it harder for you to borrow.
• The lender must give you a paper called the Notice to Cosigner that explains these risks. Read it.

Cosigning checklist

• I could pay the whole loan myself if I had to, without hurting my own family's budget.
• I have seen the borrower's budget, and the payment fits.
• I have copies of the contract, the Truth in Lending disclosure, and the Notice to Cosigner.
• The lender agreed to tell me in writing if a payment is missed.
• I will check my credit reports often.

You can say no. You can still help in other ways, such as helping the person find a credit union loan or a less expensive car.

I care about you, and I want you to get a car. But I cannot cosign. If something goes wrong, I would owe the whole loan, and my family depends on my credit. I can help you look for a credit union loan or a less expensive car.