Auto Loan Terms and Definitions
Knowing what both dealers and lenders are referring to can speed up the vehicle buying process as well as make your experience a pleasant one.
- Pre Qualify
- This is the amount that you can borrow according to preliminary information you submit. By answering a few questions, we can tell you exactly how much of an auto loan you qualify for, it takes only 30 seconds to use our obligation free, car loan qualification calculator.
- Loan Principal
- The actual cost of the vehicle. This is the amount just as if you were buying it for cash.
- The amount you pay in order to borrow the money for your vehicle loan.
- The principal and interest on a loan laid out over the course of the loan. Our auto loan payment calculator lays this out for you in an easy format.
- Annual Percentage Rate (APR)
- The cost of the credit you are borrowing on. For instance, if your APR is 10% and the cost of your vehicle is $5,000 and you have a 12 month loan, the APR in dollars would be $500. Basically the amount that you owe times the amount that the lender is charging is the APR.
- An "assignee"
- The lender that purchases the contract from the dealer
- Outside Lender
- This term is often used when a car buyer already has financing secured. Often times an outside lender is a bank or credit union that the buyer uses for their personal banking.
- On Site Financing
- Getting a loan directly through the dealership, many times this is referred to as buy here pay here financing, in house financing or even tote the note. Here is a video link explaining "we finance vehicle dealers" and how they operate when it comes to auto financing.
- Person who is willing to assume responsibility of the repayment of a loan
By using our loan estimator worksheet
we make it even easier for you figure out what type of vehicle financing fits within your budget. Our goal is to help people just like you have the opportunity to own their own automobile and stay within their budget.
Auto Loan Payment Terms
Make sure that you understand what these next few terms refer to when it comes to vehicle financing. You will hear these words when you are at the dealership or used car lot quite often.
- The total amount of the loan that you will be repaying.
- Interest Rate Cap
- The amount that the interest rate can fluctuate on an adjustable rate vehicle loan.
- Payment Cap
- The highest monthly payment that you can afford according to your debt to income ratio.
- Captive Finance Company
- A finance company that is privately owned by a manufacturer and is set-up to finance a dealers' automobile inventories, or make loans to car buyers
At many dealerships across the country, auto loan specialists will use terms that you may not understand, do not be afraid to ask them for an explanation. They will gladly help you through the auto loan process
, making sure that know and understand what your commitments are.
Small Print Terms
Most of these terms will be used on the auto loan contract. Many of the terms below are used to cover events such as non repayment of the auto loan.
- Default (Default Account)
- This is a failure to repay the auto loan as listed in your contract. Depending on the contract you sign, default can happen in as little as 7 days overdue. If you think that you may be late for a payment, the best thing to do is contact the loan provider.
- Repossessed (Repossession)
- Repossession is simply taking back the vehicle if you fall behind on your payments. Acceptable late payment ranges vary, depending on the lender. Dealerships that offer in house financing may allow for only 7 days past due while some banks and credit unions will only allow for up 60 days over due.
- In most situations the vehicle you are purchasing is used as an asset. In some cases of bad credit, you may be required to list additional collateral as assets, if you do not make your payments on time, the asset(s) will become property of the lender.
- Sometimes the finance company will allow a consumer to use "collateral" to ensure the repayment of a loan. If the loan is not paid then the asset used as collateral will be lost.
In order to rebuild your credit through a bad credit auto loan, you may have to settle for a vehicle that is less luxury than you would like. After just a couple of years of on time payments both your credit score and repayment history will be back on track.
Closing the deal
- This simply means a transfer of funds from the buyer to the seller has been legally prepared and ownership of the vehicle will be/is transferred to the buyer.
- The information that is given to you about the entire transaction and financing terms.
- Once you have agreed on the terms and your obligations, your signature is required.
Making sure you understand financing, even bad credit vehicle financing, is important during the car buying experience. There are thousands of different auto finance programs available no matter your credit situation, we make it easy by matching your application to the program that fits your needs the best. Start the car loan process today with Auto Credit Express by filling out our online auto loan application here
, and drive away tomorrow.