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Auto Loan Glossary: Know These Before You Go To the Dealership

Posted in Buying a Car
February 16th 2017 by
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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.


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