Car finance admin fees explained

Unfortunately, fees are a (slightly annoying) fact of life. While we’d all prefer to avoid them where possible, some extra charges are simply part and parcel of the car finance process to cover all manner of processing and administration work - and they need to be factored into your budget. 

Depending on the type of fee, some will need to be paid upfront while others will only come up later in your loan term. There are also some fees that will only need to be paid if you take certain actions like ending your finance agreement early. 

The good news is that additional fees should never come as a surprise. If there are compulsory charges you’re expected to pay as part of your finance agreement or in the car buying process, they should be clearly disclosed before you sign any paperwork (but don’t forget to check the small print!) 

Read on to learn everything you need to know about administration fees and how they might affect your car finance journey:

What are administration fees?

In the world of car finance, administration (or admin for short) fees are compulsory charges that the dealer or lender will add on top of the car’s sale price.

You must pay these fees to be able to complete your transaction and get the keys to your new pride and joy.  

Even so, not all admin fees are created equal. Different lenders can charge different amounts so it’s well worth taking some time to understand the charges you might face before formally committing to an agreement and signing on the dotted line. 

Keep in mind that any admin charges that do apply should be made crystal clear by your lender up front so everyone knows why they exist and when they must be paid. 

You might also come across some other optional fees when buying your car, but as these aren’t compulsory, they aren’t technically classed as admin fees. These might include things like paint protection, an extended warranty, a service plan, or a home delivery fee if you’ve bought your car online.

What kind of admin fees might be attached to car finance?

There are quite a few different admin fees that might crop up when you’re buying a car on finance (think of this as your friendly heads up). 

Here are a few that you might need to know - and what they cover: 

Dealer Admin Fees

Also known as processing or documentation fees, these are charges added by the dealer who is selling your car. They will usually cover the cost of processing all the paperwork that’s connected to making a car purchase. Sometimes, these fees can also include added extras like short-term insurance, and they can add up to £500 or more.

Option to Purchase Fee

With a hire purchase (HP) finance agreement, you’ll usually need to pay an Option to Purchase fee. This is the amount due at the end of the loan term and covers the cost of the transfer of ownership that makes you the car’s legal owner. This charge will usually be between £100 and £300, however here at Carmoola our Option to Purchase fee is only £1. 

Early Termination Fee

If your circumstances change and you want to end your finance agreement early, you’ll likely face an early termination fee. This will be added on top of the settlement figure that you need to pay to exit this legally binding contract. It’s designed to make up for the cost of any admin involved in ending the agreement as well as compensating the lender for the future interest they’ll miss out on. 

Lender Admin Fees

Not all lenders charge admin fees, but those that do will be including them to cover the cost of processing and managing your car finance agreement. This might include the time and money involved in assessing your application, verifying your documentation, and prepping any paperwork. 

What does the law say about admin fees?

Arguably the most important legal requirement when it comes to admin fees is that the companies charging them should be honest. Everything needs to be disclosed upfront and explained before you sign any paperwork. That means the fees must be clearly displayed and included in the final sale price of the car. You should never get to the point of signing the contract of sale and then suddenly get hit with a bunch of fees you weren’t expecting. 

If the admin fees are deliberately hidden and not disclosed, this could be classed as being deliberately misleading. This also contravenes the Consumer Protection from Unfair Trading Regulations 2008. In this case, you may have the right to unwind the deal so that you’re restored back to the position you were before signing the agreement; to receive a discount; or to claim damages if you’ve suffered any losses due to the company’s actions.

What are my rights to refuse or dispute fees?

Despite the legislation, admin fees aren’t always consistent or clear, which can make them tough to navigate. Even so, you don’t have to suffer in silence. You can challenge any fees that you don’t think are fair or haven’t been properly disclosed (and you can always walk away before the paperwork is signed). If you’ve been bingeing The Apprentice and want to test your negotiation skills, you could also try to negotiate a lower charge (or a waiving fees entirely) if you’ve fallen in love with the car but think the associated fees are unreasonably high.