Finance Terms Explained
Finance Terms Explained in Tallahassee, FL
Purchasing a new or used vehicle is exciting, but when it comes to financing, many customers are intimidated by all the jargon and fine print. That’s why the team here at Tallahassee Ford wants to make the financing process as simple and transparent as possible so you’ll feel confident as you sign on the dotted line for your next vehicle. Below, we’ve listed definitions for common finance terms that you may hear while you complete a credit application and prepare to buy a vehicle. Whether it’s your first time buying a car, or you just need a refresher, read on to learn more. If you have any more questions, feel free to contact us or visit our dealership to meet with someone from our Tallahassee Ford finance team. When you buy from Tallahassee Ford, we make it easy!
Finance
When you finance a new or used vehicle, you borrow money from one of our lenders or another bank in order to make the purchase. You repay the loan over an agreed period of time, at a certain interest rate. Once you’ve paid back the loan, you own the vehicle.
Leasing
Leasing a vehicle is like leasing an apartment: You rent it for an extended period of time. You’ll pay a down payment followed by monthly payments, and at the end of the agreed term, you return the vehicle (or you also have the option to buy it). Leases typically run for 24 to 36 months, although some last as long as 60 months.
Term
A term is the amount of time a loan or lease is active. If you’re paying off a loan for a car you bought, remember that the shorter the terms, the higher the payments (but you’ll also get lower interest rates). If your terms are long, you’ll have smaller payments but a higher interest rate.
Principal
The principal is the loan amount you have to pay off.
Money Down
This is the amount of money you pay when you sign for your vehicle, also known as a down payment. The more money you can put down up front, the lower your monthly payments will be.
Interest
When you take out a loan, the lender will charge you a small fee, known as interest, along with your monthly payments. It’s basically the fee you are charged for borrowing money.
APR
The APR, or annual percentage rate, is the more comprehensive cost of borrowing money. It includes interest plus any other fees you pay to your lender. This amount is determined by a few different factors, including your credit score, the term length and how old the vehicle is.
Cash Back
Car manufacturers may offer cash back as an incentive to purchase a vehicle. You can take home a check after purchase, or you can apply the cash back to your down payment and shave money off the purchase price.
Rebate
A rebate is another incentive, but it’s applied after purchase. You’ll get a check for the rebate amount or the dealer will give you cash.
Trade-in
When you trade in, you bring your old vehicle to a dealership in exchange for money off your next vehicle purchase. The exact amount off will depend on the value of your trade-in.
Depreciation
Depreciation is the process of a car losing value over time. This happens to all cars, and it begins as soon as you drive the vehicle off the dealer’s lot, continuing throughout the car’s lifetime.
Equity
Equity is the percentage of your car you own while you’re paying off your loan (as opposed to the amount the bank still owns). You can determine your equity by subtracting the amount you owe from your car’s value. For instance, if your car is worth $20,000 and you owe $2,000 to the lender, you own $18,000 in equity. When you pay off your loan, you have 100% equity in the car.
Upside Down
You’re “upside down” on your loan if you owe more on your vehicle than it’s worth. This is a difficult spot to be in, since it makes selling the car very difficult, so try to avoid being upside down if at all possible.
If you have further questions, give us a call or visit us at 243 North Magnolia Drive, Tallahassee, FL 32301. We look forward to serving our customers from Thomasville, GA, Havana and Crawfordville, FL.