Knowledge is power when it comes to car shopping. Read over these terms before you head to the lot:
APR
This is short for Annual Percentage Rate. It’s the percentage you have to pay each year for financing your vehicle. The APR you get for your loan depends on your individual creditworthiness.
Balloon Payment
A loan with a balloon payment will give you manageable monthly payments with one large payment, the balloon payment, at the end of the loan.
Black Book
This refers to information about a vehicle based on data from wholesale car auctions.
Blue Book
Blue Book is short for Kelley Blue Book, which helps determines the value of a vehicle.
Dealership Fees
Dealership fees can include fee for vehicle preparation, documentation and administration. These fees may also be negotiable, so be sure to look over them before signing a contract.
Default
Defaulting is to breach a credit agreement, and usually entails failure to pay.
Delinquency
Making late payments can put a loan into delinquent status.
Finance Charge
This is the total interest charges you will incur over the life of your loan.
GAP Insurance
GAP insurance covers the “gap”between your insurance company’s payout and the balance of your loan in the event your vehicle is stolen or broken beyond repair. Most insurance companies only pay the cash value of the vehicle at the time of loss, and that number often falls short of the remaining loan balance.
Invoice Prices
This refers to what the dealership paid for the vehicle from the manufacturer.
Loan-to-Value
The loan-to-value ratio is the percentage difference between the loan and vehicle value.
MSRP
Manufacturer’s Suggested Retail Price
Prepayment Penalties
Refers to charges incurred for paying off a loan early. If you have decent credit, you should not book a loan that penalizes for paying off early.
Principal
This the amount owed on the loan, not including interest.
