When you take out a mortgage or auto loan, you may encounter a document preparation fee (often called a “doc fee”). This fee covers the cost of preparing and handling the necessary paperwork, including loan agreements, disclosures, and title documents. While the paperwork is essential, the fee itself is often a source of additional revenue for lenders or dealers, making it important to understand what you’re paying for and whether the fee is fair.
What Does a Document Preparation Fee Cover?
Typically, this fee includes:
- Gathering your personal and financial information.
- Generating legal and financial forms such as promissory notes and truth-in-lending disclosures.
- Ensuring the paperwork complies with legal and regulatory standards.
Due to increased automation with software, many consumer advocates consider high doc fees to be “junk fees”—added charges that boost profits without a corresponding increase in value to the borrower.
Where Do You See Document Preparation Fees?
Mortgages:
When purchasing a home, you’ll receive a Closing Disclosure at least three days before closing, outlining all loan costs. A document preparation fee may be listed separately and is charged by the lender or title company to prepare final closing documents. Unlike the broader closing or settlement fees, which cover the overall closing process, the doc prep fee specifically pays for document creation. The Consumer Financial Protection Bureau (CFPB) highlights that this fee is for lender work, not a government-mandated charge.
Auto Loans:
Car dealerships commonly add a doc fee labeled as a “dealer processing charge” or “administrative fee.” This fee covers preparing contracts, titles, and registration paperwork. Regulation varies by state: some impose limits on dealer fees, while others allow fees exceeding several hundred dollars. According to Forbes, dealers must charge the same doc fee to all customers in a given state.
| Feature | Mortgage | Auto Loan |
|---|---|---|
| Who Charges It? | Lender, title company, or attorney | Car dealership |
| Typical Cost Range | $50 to $500 | $75 to $800+ (varies by state) |
| Regulation | Federal laws such as RESPA | State-dependent |
| Negotiability | Sometimes negotiable or can offset | Rarely negotiable; negotiate car price instead |
Tips for Managing Document Preparation Fees
- Ask Upfront: Before agreeing to a loan or purchase, request a detailed list of all fees, including the doc prep fee.
- Review Documents Carefully: Examine your Loan Estimate or purchase agreement for these fees and question any unclear charges.
- Negotiate Overall Costs: While some fees may be non-negotiable, like dealer doc fees, negotiate the total price to account for these charges.
- Shop Around: Compare offers from different lenders or dealers to find the best overall deal.
Common Misunderstandings
- The document preparation fee is not a mandatory government charge; it’s a fee set by the lender or seller.
- While doc fees can seem fixed, total transaction costs may be negotiable.
- The doc prep fee differs from a closing or settlement fee, which covers broader services during loan closing.
For more on related fees during mortgage transactions, see our article on Mortgage Closing Costs. To understand more about car loans and their fees, explore Auto Refinance.
Additional Resources
- Consumer Financial Protection Bureau: What is a document preparation fee?
- Forbes Guide on Doc Fees: What Is A Doc Fee On A Car? And Can You Negotiate It?
- Kiplinger Tips: Don’t Get Taken for a Ride: How to Avoid Car Dealer Fees
Understanding document preparation fees helps borrowers make informed decisions and avoid unnecessary costs when financing major purchases.
