Take a look at the key terms to know about auto loans

Take a look at the key terms to know about auto loans

If you are planning to buy a new car there is some vocabulary to know. Here you will find the key terms to know about auto loans. Keep reading and learn all about it!

If you are planning to buy a new car there is some vocabulary to know. Here you will find the key terms to know about auto loans. Keep reading and learn all about it!

Buying a car can leave you feeling like auto dealers are speaking a whole new language when they talk about things like a down payment, depreciation, direct lending or dealer financing. Follow this map to understand these terms and learn how financing a car can impact your budget.

Before you buy a vehicle, review your monthly budget so that you know what you can responsibly afford. Also, consider whether you plan to trade in an existing automobile. Knowing this information will help you determine your down payment—the more you pay upfront, the less you pay each month for your auto loan.

Before you buy a vehicle, review your monthly budget

You can get pre-approved for an auto loan by a bank, credit union or online lender before you even begin car shopping. Knowing your approved interest rate and how much you can borrow ahead of time helps you budget and puts you in the driver’s seat when you are at the dealer.

Most car buyers need some kind of financing to purchase their vehicle. Shopping around between different lenders can help you find the best rate.

A down payment is a lump sum paid up-front that often reduces the size of your monthly payments. For the lender, it reduces risk and offsets some of a new car’s initial value depreciation. A trade-in can also count as a down payment in certain instances.

A down payment is a lump sum paid up-front that often reduces the size of your monthly payments.

The term is how long you have to pay back your loan. A longer term means smaller monthly payments, but also more interest paid in total over the life of the loan. It’s important to calculate how much more interest you will owe by stretching payments over time.

The annual percentage rate, or APR of a loan, is the interest rate plus any other fees the lender charges. It’s important to shop around in order to find the lowest interest rate. Often, you can negotiate the APR with the dealership, too. In general, the shorter your loan term and the higher your credit score, the lower your interest rate.

A new car’s value drops when you drive it off the lot - Depreciation. To avoid going “upside down” on your loan—owing more than the car is worth—try to make the biggest down payment you can manage. After 3 years, new cars are worth about 42 percent less than purchase price.

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