6 Car Financing Terms You Need to Know

When deciding to purchase a new vehicle, it’s good to have an idea of how much you are going to end up paying when everything is said and done. There is more than just the base price of a car to consider when you are shopping for a new vehicle. Another major element you will need to take into consideration is the cost of financing. Below you will find six car financing terms that will have an effect on the final price you pay for your new vehicle.

1. FICO Score or Credit Score

Lenders use borrowers' FICO scores along with other details on borrowers' credit reports to assess credit risk and determine whether to extend credit. 90 percent of top lenders use FICO® Scores to help them make billions of credit-related decisions every year. Some things a FICO score takes into account is whether or not someone pays their bills on time or whether or not they’ve been previously successful with a large credit line. The data is then used to determine the risk associated with lending a large sum of money.

2. Default

If you default on your car loan, it means you have broken your repayment agreement. Borrowing money for an auto loan comes with strict rules you have to follow, and if you don’t, you could end up in a legal battle with the lender. Missing payments or making late payments is taken seriously. Typically, auto loan defaults are reported to credit bureaus after 90 days of nonpayment.

 

3. Annual Percentage Rate (APR)

Your Annual Percentage Rate (APR) is a numeric representation of your interest rate. Your APR will account for financing fees and accrued interest. It is negotiable and differs depending on a few variables, including your credit score, your lender, and your loan term.

4. Loan Term

The amount of time you have to pay back your loan is called your loan term. Most auto loans vary between three and seven years, and it is something you should discuss with your lender beforehand. The loan term is determined by the cost of financing a vehicle, combined with the down payment you place on your new vehicle and how much you can afford in a monthly payment.

5. Co-Signers

A co-signer is something you might need if your credit score is low or you have proved to be a high-risk borrower in the past. A co-signer can be anyone you choose, but that person must agree to take over the loan if you default on it and have a good line of credit themselves. It gives your lender some peace of mind to know that they will still receive their money even if you can’t afford to make your payments.

6. Down Payment

In auto financing terms, down payment refers to the amount of money you can afford to pay at signing, toward the purchase of your new or used vehicle. Your down payment will depend entirely on you and how much you can afford at the time of purchase. The more of a down payment you can afford, the better, because you will be able to apply for a smaller auto loan thus costing you less in interest in the long run. If you’re trading in your current vehicle, the trade-in can cover the down payment if the vehicle has enough value.

Financing On Your Terms

Financing a new vehicle can be a tricky process. Understanding the various financing terms, and ensuring you get the best deal for your situation, isn’t always easy. This is especially true when the average time between car purchases is about six years. You can rely on Webber Family Motors Finance Center to help you make informed financing decisions the next time you are looking.