Finance Terms Explained in Lithia Springs, GA

Here at Lithia Springs Ford, we understand that it can be a hassle to finance a car. From reading the fine print to having to pull together documents, there's a lot to comprehend and read through before signing your name. But we want to help you understand by explaining some of the most common finance terms that pop up; we want you to feel more confident when signing a contract. Keep reading to learn more about finance terms!

Most Common Finance Terms

Finance

In simple terms, financing just means borrowing money from a lender so you can purchase your desired vehicle. Essentially, the lender buys the vehicle for you, allowing you to repay the loan over an agreed term and interest rate. When financing, the lender gives you the service of borrowing its money, while you pay them back with interest.

Leasing

Leasing, basically, is like extended renting. It's a great way to try out new cars that are still under warranty, but you'll return the vehicle at the end of the agreed term. You typically pay a down payment, although some specials require zero down, followed by monthly payments until the end of the lease term. Typical lease terms run anywhere from 24 to 36 months, although they can go up to five years. Once your term is up, you can return the car or have the option to buy it.

Term

Simply put, the term is the set amount of time for a loan or lease. For example, the term on a 36-month loan is 36 months, or three years. Shorter terms usually mean higher payments but lower interest rates. When agreeing to a loan, make sure the loan term matches your budget.

Principal

The principal is the initial size of the loan, or that big number you want to chip away at. For example, if you were to finance a car that costs $18,000 but put down $2,000 for your down payment, your principal you'd have to repay would be $16,000.

Money Down

The more, the better! Money down is how much money you place up front on a loan. It's also called a down payment. The more you put down up front, the lower your monthly payments will be. If you purchase a vehicle listed at $20,000 but you pay $5,000 down, you'll only have $15,000 left to repay. Your money down won't be charged interest, and dealerships usually require a large down payment to secure a desirable interest rate.

Interest Rate

When you take out a loan, you're usually charged interest. This is the fee added onto your monthly payments, and it protects lenders from risky customers who may not repay the loan. You may also hear the interest rate referred to as the APR, or annual percentage rate. APR is determined by your credit score, the term length, the age of the vehicle being financed and other relevant factors.

Cash Back

Cash back is a pretty sweet deal. It's an incentive from manufacturers to encourage you to purchase a vehicle. It can shave off thousands of dollars on your vehicle purchase price, or the dealer can write a check for the amount advertised. You can usually use the cash back as the down payment and reduce the selling price, or you can walk away with a check in hand.

Rebate

This is probably a term you've heard before. A rebate is an incentive that is usually applied to the selling price of a vehicle, but only after purchase. Once all the paperwork has been completed, the dealer will write a check for the rebate amount or give you cash on hand. Cash back is instant, but you may have to wait on a rebate to arrive.

Trade-In

When trading in, you're offering your old vehicle to the dealership for credit towards the new vehicle that you want to purchase. By doing so, you can take thousands of dollars off the asking price, although you'll probably end up financing the new car anyway.

Depreciation

Depreciation is when a car loses value. It happens year after year until the value is zero. You should happen to remember that depreciation affects every car, regardless of its condition. A brand new car loses around 10-20% of its value just by driving off the lot. In five years, that brand new vehicle will shed 60% of its original value, no matter how pristine you've kept it.

Equity

Equity is the difference between what the car is worth and how much you still owe on it. If the value of your car is $15,000, but you still owe $6,000 to the lender, you have $9,000 in equity. It's important to keep this ratio balanced and not gain negative equity; this means you owe more on the loan than what the car is worth.

Upside Down

This is what we refer to as negative equity, as previously mentioned. Owing more on the vehicle than what it's worth makes it difficult to sell, and negative equity can follow you into a new loan. If you finance with us here at Lithia Springs Ford, we'll try to help keep you from making this error.

If you have further questions or would like to know more, give us a call or visit us at 870 Thornton Rd  Lithia Springs, GA 30122. We look forward to serving our customers from Atlanta, Dallas, Douglasville and Smyrna.