When you finance a vehicle, it’s important to know what you’re agreeing to as you sign your purchase agreement. Since the average individual purchases a vehicle every six years or more, it’s important to stay current on common financing terms and understand how they work together.
Financing Terms to Know
The following financing terms all affect the amount you will pay when purchasing a vehicle. As a prospective buyer, having an idea of what you want to pay and how much vehicle you truly can afford is priceless.
1. Loan Term
Loan term refers to the amount of time allotted for repayment of a loan. Auto loan terms typically vary from three to seven years. The loan term is determined by the cost of financing a vehicle, combined with the amount the individual making the purchase can afford as a down payment and as a monthly payment.
2. Down Payment
In auto financing terms, down payment refers to the amount of money you pay at signing toward the purchase of your vehicle. The ideal down payment is the amount the purchaser can realistically afford. If you’re trading in your current vehicle, the trade-in can cover the down payment, if the vehicle has enough value.
3. FICO Score or Credit Score
A FICO score is a credit score that’s determined by using an individual’s credit information to predict their future behavior. 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.
4. Annual Percentage Rate (APR)
Your Annual Percentage Rate (APR) is the interest you pay on the money you borrow when you finance a vehicle. Your APR is negotiable and differs depending on a few variables, including your credit score, your lender, and your loan term. Your APR will account for financing fees and accrued interest.
When someone defaults on a car loan, it means they’ve broken their repayment agreement. When you borrow money for a vehicle purchase, the repayment plan is very specific. Missing payments or making late payments is taken seriously. Typically, auto loan defaults are reported to credit bureaus after 90 days of nonpayment.
When someone co-signs an auto loan, it means they have agreed to take on the responsibility of paying back the loan themselves. A co-signer is responsible to cover payments if the borrower defaults.
Financing On Your Terms
Navigating the process of financing a vehicle, 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. At Miller Auto & Marine, our finance staff work with financing terms and figures each and every day. You can rely on them to help you make informed financing decisions.