Walking into Bakersfield Mitsubishi intending to buy a car requires more than a check. Here are a few common finance terms to help you through the car buying process.
A Credit Score is what lenders use to determine whether or not they offer you a loan. High and low credit scores come with several benefits and drawbacks. High credit scores will net a higher approval rate and lower interest rates. Low credit scores, on the other hand, make it harder to get a loan, and applicants will be faced with higher interest rates.
A Creditor, or lender, is the person or institution that provides the financing for a vehicle.
Depreciation is the decline in a vehicle’s value over time and use. A new vehicle, for example, often sees a dramatic decrease in value when it leaves the lot under new ownership.
A Down Payment is the money initially paid towards the vehicle. That money can help reduce the total amount financed on an auto loan. Borrowers with low credit scores can increase the likelihood of getting approved for a loan with a larger down payment.
Having Equity is when the vehicle is valued at more than what is owed on the loan.
Being Upside-down on a loan is when the amount owed on a vehicle is more than what the vehicle is worth if it were sold then and there.
APR, or Annual Percentage Rate, is the cost a borrower pays to use a lender’s money. It’s normally expressed as a percentage and isn’t the same as a loan’s interest rate. A higher APR means the borrower will pay more over the life of the loan.
When a car is Financed, it means the buyer has taken out a loan to pay for the vehicle. When a borrower finances a car, the lender holds the title until the last payment is made.
The Interest Rate is the fee a lender charges to use its money. Interest rates are charged as a percentage of the total amount borrowed.
A Lending Institution is the company that loans money to finance a car. Institutions can include banks, credit units, and the automotive manufacturer.
The Term is the length of the loan expressed in months. The most common car loan terms range from 36 to 60 months. Loan terms can be extended to 72 or 84 months to lower the monthly payment.
The Title is a legal document that includes who owns the vehicle and specific information about the make and model. The lender will hold the title until the loan reaches maturity. Once the loan has been repaid, the lender will release the title.