Car Finance Terms

Here are all the car finance terms and definitions you will ever need to know...

Acceleration Clause: An agreement that takes place after signing your auto loan papers (not all car loans have this) that says that if you don't make even one payment that the entire balance of your loan is due immediately. Yikes!

Amortize: Also known as Loan Amortization: A loan that is payed off in regular and usually equal monthly payments over the term (length) of the loan.

Appreciation: The process where somethings value will rise or “appreciate”. Pretty rare with cars which is why you always want to buy at the lowest price possible!

Annual Percentage Rate: Also known as “APR”, “Interest Rate” or “Loan Rate”. The rate charged on a loan over a year. A 10% APR would cost you $100 per year. The APR tells the buyer how much the loan really costs per year.

Assets: The things you own like a house, cars, etc. If those “things” are financed than what you owe on the loan is a liability and the amount you’ve paid off are assets.

Collateral: These are assets that you will use as collateral to secure a loan. If you don’t pay the loan then the finance company can take the assets you put up as collateral.

Credit Line: Also known as “A Line Of Credit”. This is a type of loan where you draw money on it as you need it.

Credit Report: This is where all your "Credit History" is kept. For about $10.00 you can see your own "Credit Rating" a few minutes from now with True Credit and Equifax.

Credit Score: Also known as your "FICO Score."  Your credit score is one of the main things a creditor looks at when deciding whether or not to give you a car loan. For about $15.00 you can get your instant credit report with credit score from Equifax and True Credit.

Depreciation: This is the amount that an asset loses over time. Once again: Cars depreciate. This is fact – so always buy low, unless you like to burn your money!

FICO Credit Score: Also known as your "Credit Score." The decision a lender makes on whether to give you a car loan or not, or what interest rate to apply to your loan is based mostly on what your FICO Score is. Here is the FICO Score breakdown...

:: 350 - 499: Dude, what can I say? Your credit really sucks and you are going to have a reeeeeeally difficult time getting a loan from a conventional lender. Better suck it up and call cousin Vinny.

:: 500 - 599: This is what you call poor credit. You can get a car loan but you will pay dearly due to high interest rates.

:: 600 - 649: Fair credit. You will probably be offered interest rates from 6% to 10% (these rates always change).

:: 650 - 699: Good credit. You will probably pay one to two percent more than people with the highest FICO Score.

:: 700 Or Higher: Excellent credit. You will pay the lowest interest rates available for a car loan...assuming you shop for quotes.

Interest: This is the amount that a finance company charges you for letting you use their money.

Late Payment Charge: Also known as the "Overdue Payment Charge" or "Delayed Payment Charge". If you're late on your car loan payment then you may be charged a late fee in addition to your regular monthly payment.

Liabilities: Everything you owe money on is considered a liability.

Lien: If you finance a car, the finance company will hold the title (certificate of ownership) on the car and won’t release it to you until you’ve paid off the debt.

Loan Term: The length of a loan. Car loans are usually measured in months instead of years. Apply online for a car loan and know within minutes from 1800AutoYes and

Monthly Payment: The principal and interest combined that is owed on a loan. This is paid off with regular monthly payments over the length (the "term") of the loan.

Negative Equity: This is when you owe more on a vehicle than its worth. Its also referred to as being “Upside Down”.

Net Worth: Add up all your assets and then deduct all your liabilities and you end up with your “Net Worth”.

Principal: This is the amount you borrow on a car loan. You also need to add the interest on to the principal.

Term Loan: This is a loan that’s paid back in a lump sum at the end of the length of the loan.

Upside Down: Also referred to as “Negative Equity”. This is when you owe more on a vehicle then its worth.

Vehicle Equity: Also known as “Equity”. This is the amount your vehicle is worth when you subtract what you’ve paid on the vehicle. Usually your cars equity is valued at the wholesale price level.


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