Finance 101: Terms You Should Know | Princeton, WV

When it's time to buy a car, truck, or SUV, it's easy to get caught up in all of the confusing language of financing your vehicle. Here's a quick and easy guide to help you decode common financing terms.

Loan Term

The term is the length of your car loan, expressed in months. Many loans last 60 months, but some are as short as 36 months or as long as 72 months.

Interest Rate

Your loan's interest rate is basically the cost of borrowing money, expressed as a percent of the total loan. A lower interest rate saves you more money.

APR

APR stands for Annual Percentage Rate. This rate is the total yearly cost of borrowing money, stated as a percent. It is comprised of your loan's interest rate, along with other costs associated with borrowing money, such as fees associated with getting the loan. As with interest rates, a lower rate means bigger savings.

Co-Signer

A co-signer is a person who has legally agreed to pay back your loan if you fail to make payments. This is typically a parent or other close family member. If you have bad credit or no credit, a co-signer can help you get a car loan - or even a better rate on your loan.

Principal

The principal is the amount of money you agreed to pay back to a lender. When you make a car payment, money is first applied to any fees (such as late fees), then to the interest, and finally, to the principal.

Down Payment

The down payment is the initial payment you make on your vehicle. While many drivers make down payments in cash, you can also apply the value of your trade-in vehicle to the down payment on your next vehicle. The bigger the down payment you make, the less money you will have to borrow. In other words, a big down payment means you'll pay less money towards interest in the long run.

Want to learn more about financing your next vehicle? Contact Ramey Ford Princeton's helpful financing department.