As with any financial purchase, there are terms that most of us just don’t understand. Here is a brief list to aid you in the car buying process of buying a car. Don’t be someone who will ask a technical question about the car but not about how it will be financed. We understand that money is tight and you need to get the best deal you can in both the price you pay and the terms of the loan.
1) Down Payment – This is the amount that is given to offset the difference between the price of the car and the amount financed. When possible, you should try and put down around 20%. This helps in both allowing you to have a greater number of financial institutions consider your loan and will keep up (as much as possible) the value of your car.
2) Credit Report – How we handle our financial responsibility has far reaching affects on our ability to purchase with credit. The better your credit record, the better deal they can give you. When you apply for a loan, ask to see a copy of your credit.
3) Amortization- This is your monthly payment and its reduction on the loan to its end. In most cases payment is made to the principal and paid interest over a certain amount of time.
4) Balloon Payment – Some loans exchange a lower monthly payment for a large payment at the end. While this can be a great deal, it can be an issue at the end of the loan. You always want to consider this type of loan carefully.
5) Term – How long will your loan be? The longer it is stretched out the lower the payment typically is. What should be considered however is that a longer term loan can be more expensive at the end given you paid interest for a longer period of time. Auto loans are typically available in 24, 36, 48 and 60 months.
6) Trade in Value – Your car is an asset that you trade in for a value. If your upside down (Your cars market value is lower than your loan amount) in your loan it will be a factor in the deal as well. The value of your car is determined as an industry average by such companies as Kelly Blue Book and Black Book (Which a reputable dealer will gladly show you) taking into consideration factors such as high miles, overall condition and if certain upgrades that may have been made.
7) Finance Contract – As with any extension of credit, a contract is involved. It is very important that you READ AND UNDERSTAND this contract fully. You need to know what your rights are, what you will be paying and what the long term amount will be. Believe me when I say that the dealer wants you to know this as it decreases the chance of problems down the line.
The car buying process can be very confusing (It doesn’t matter if its your first time or tenth) process. Hopefully this post will give you some idea of the terms mean. The best advice that can be given is ASK QUESTIONS of the dealer and make sure that they have a great reputation.
