Understanding Auto Loans |
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It's not hard to understand what auto loans are for, but knowing their intricacies is often a whole new ballgame. An auto loan is essentially a binding agreement between a lender and a borrower who uses the lender's funds to get a car. The advantage to getting an auto loan is that you don't have to wait until you save up the entire purchase price of the car to begin driving it. On the flip side, the loan will incur interest charges, which will result in you actually paying more than the purchase price over the life of the loan. Beyond this simple explanation there are a number of terms and auto loans jargon that you should be aware of so that you are at least armed with the basics of understanding auto loans and how they work. Amortization Known as the reduction of the auto loan as regular payments are made towards the principal and paid interest over a certain period of time. APR (annual percentage rate) This is a way of expressing the overall cost of obtaining credit for an auto loan. All consumer loans, including auto loans, must disclose the annual percentage rate as per Federal law. Application You must complete an auto loan application before a lender can determine how much they will be willing to lend you for your auto loan. It will collect your personal and financial information so that they can assess your ability to pay. Balloon Loan An auto loan that provides for small monthly payments in consideration of one large balloon payment that must be paid at the end of the auto loan's term. Credit Bureau An independent and unbiased company that harvests information about consumers from corporate reporting and public records so that banks and lending institutions can see how you handle revolving accounts and debts. Credit Report This is a document that describes your payment and credit history. An auto loan lender will certainly review your credit report to determine creditworthiness and to verify your application's information. Down Payment This is the amount of money you pay when purchasing a car and obtaining an auto loan. A down payment reduces the amount of money financed. Finance Contract When you obtain a new auto loan, you will undoubtedly have to sign a finance contract that specifies the terms and payment requirements of a loan. Interest This is the percentage rate paid on the money borrowed in exchange for the use of the lender's money for the auto loan. Principal This is the amount of the original auto loan made to the borrower by the lender. Every payment you make has a percentage applied to the principal and a percentage applied to the overall interest. Term This is the duration of an auto loan and how long it will last. Auto loans are typically financed for 24, 36, 48, or 60 months. Trade-in Value This is the value of a car that you want to trade-in when purchasing a new car. The trade-in value is typically equal to what's called the wholesale book value and is then deducted from the final purchase price. We have pooled together the best auto loan lenders possible so that you don't have to search for the best companies. Most of these auto loan lenders can approve your request quickly so if you are looking for the best in auto loans, you might be interested in the following finance companies. |
