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Auto Finance Dictionary

The world of auto finance can be difficult to understand and overwhelming if you aren’t familiar with some of the basic terminology used by finance experts. Here is a list of some Common Auto Finance Terms to help you become well-versed in the art of auto finance.

 

APR 
APR stands for Annual Percentage Rate, also known as Interest. If you buy a $25,000 car and get a loan with 5% APR, the actual price you are paying is $26,250, because you have to pay for the car and the interest of the loan.


Credit score 
Your credit score helps tell lenders if you are reliable. In order to obtain a good credit score, you must consistently make payments on time. Your good credit score shows that you will be a good person to lend money to.


Down payment
A down payment is the money that you pay for your car upfront. Auto experts at Edmunds recommend that you save up enough money to put down 20% of the car’s cost upfront. But they acknowledge that sometimes this number isn’t realistic, due to increasing costs and static salaries.

Some people opt to put 0% down, so they don’t have to shell out loads of cash all at once. The downside to that is that it usually comes with higher monthly payments and a higher APR.


Equity

The amount of money your car is worth after all debts have been paid off. For example, if you owe $10,000 on your car, and it has a value of $15,000, you have $5,000 in equity.


Lease
When you lease a car, you are essentially renting it from the owner. Most lease contracts are for 3 years, during which you have low monthly payments and the latest technological developments but restricted mileage and customization


Rebate
Many dealerships have special incentives and rebates for special circumstances, such as military personnel or recent college graduates. Ask us about our special incentives today!


Tax, Title, Tag, and Registration
In general, when you purchase or lease a car, you will also have to purchase car insurance, the title that shows that you own the car, registration of the car with your local DMV, and sales tax. Every state has different regulations when it comes to the price of your tax, title, and other fees. Visit CarMax’s fees calculator to see what your rates will be.

 

Term of the loan
The amount of months it will take to pay off your loan. Some common loan terms are 36, 48, and 60 months. In general, if the term is shorter, you will have higher monthly payments but the car will be payed off sooner. If the term is longer, your monthly payments will be lower, but you will be paying them for a longer period of time.