Shopping for a new car and getting the funds to buy your dream car shouldn’t be like pulling teeth, and it is a good idea to get educated with a little loan terminology related to auto loans. It will help you to better understand what is going on with your car purchase, as well as keep you familiar with the terms being presented to you when you sign your name on the dotted line.
Let’s start with some of the terms you will come across while looking for your vehicle. You will want to know that you are getting good deal before committing yourself to a loan. This terminology deals with both new and used autos:
Kelley Blue Book: At Kelley Blue Book, you can find out what the vehicle you are looking for is worth. Many used auto dealers will use the Blue Book in setting the prices for their used vehicles, but you can also research new car prices from their website.
CARFAX: This handy tool will give you all the information about the history of the car. You will learn if the vehicle has been wrecked, how many owners, and any other history that has been recorded about your potential vehicle. Many dealerships will provide these with the purchase of the car, and some charge a fee to retrieve one.
VIN Number: This is the identification number unique to the vehicle you are purchasing, and every car you own will have one.
Title: A title shows who owns the vehicle, and there are many types of titles out there, like clean, salvage, rebuilt, etc. (When you get an auto loan, your title will show a lien holder, and you will not be able to retrieve the title until the vehicle is paid off.)
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Common Vehicle Loan Terminology
APR: This abbreviation means Annual Percentage Rate. This is what will be charged yearly to your loan on top of the base price. Watch for a lower APR when purchasing a vehicle, because that percentage can really add up.
Base Price: This is the price you will be paying for the vehicle before finance charges and interest rates, as well as any other fees charged by the dealership.
Borrower: This is you. You become the borrower when you take out an auto loan, whether through your own bank or the dealership.
Buyer: The person that is purchasing the vehicle.
Collateral: This is an asset in which you use to secure your loan. If you default (fail at paying) for your auto loan, the creditor has the right to take your collateral (which in this case would mean repossessing the vehicle you are purchasing).
Co-signer/Co-borrower: If your credit isn’t the best, you may be asked to have someone sign/borrow with you on your car loan. They will be responsible for the loan if you fail to pay it.
Credit: This is a buying power based on your credit history and credit score.
Credit Bureau: Keeps track of your credit history. Some of the companies you will come across are Experian, Trans Union, and Equifax.
Credit History: This is a report of all you current and past purchases, accounts, etc. It will show accounts in good standing, negative accounts, who accesses your credit permissively and without your knowledge, and keeps track of your physical information and public records pertaining to credit.
Creditor: This is who you owe the money to when you take out your auto loan. Refer also to Lender.
Credit Report: Your credit report displays your credit history. Every consumer is allowed one free credit report annually to check their credit history, as well as use that report to dispute items on their credit report.
Dealer Sticker Price: This is the amount that the dealer is asking for the vehicle.
Down Payment: A down payment is a chunk of money put toward the price of your vehicle. The more you can put down on the vehicle, the better your payments will be when you start off paying for your car. It is not always required, but if you want a lower payment on your auto loan, it is essential.
Due Date: This is the day that your loan payment is to be paid monthly. If you fail, you may be subject to a late charge that adds to the amount you will have to pay to keep your loan current.
Lien/Lien holder: When you owe money on a loan, they will place a lien on your loan, and the lien holder has to release the title for you when the loan is paid off in full by signing off their lien on your vehicle’s title.
Lender: This is who will lend the money for you to have your loan. If you are borrowing from your own bank, the bank is your lender. Otherwise, dealerships have a collection of lenders that they use to borrow the money for you.
Loan Term: This is the time it will take for you to completely pay off your auto loan. Shorter loan terms equal higher payments, and longer loan terms equal lower payments. However, if you want to pay off your vehicle faster, a shorter loan could work for you.
MSRP (Manufacturer’s Suggested Retail Price: This is the list price of the vehicle according to the manufacturer of the car.
Principal: This is the total amount that you have borrowed from your lender. Paying chunks on your principal lowers your balance and you payment to pay off faster, depending on how your loan is set up.
Secured Loan: Most auto loans are secured with the vehicle in which you are purchasing from the dealership. If you fail to pay for it, your collateral is taken from you and resold to try to retrieve the money you owe to the creditor. If the car does not sell for the entire amount of your auto loan, you will be responsible for the amount that is not covered by the sale of the vehicle.
Tax: Taxes are inevitable. You have to pay them on anything you buy, including your car.
Trade-In Value: This is the amount that the dealership is giving for the vehicle you are trading in on your new vehicle.
Now that you have the terminology and the tools to purchase your new vehicle, we wish you good luck and happy driving.
Tags:
auto,
car