After years, months, and days of waiting, you’re finally eligible to purchase a car! You should be proud of this important milestone. However, do you understand the legal jargon used in auto loan agreements? Some loan companies and lenders will add challenging wording to their contracts to confuse their borrowers. At Superior Financial, we want our borrowers to improve their financial habits and polish their credit reports. We’ll define common auto loan terminology you should know to pick the best loan.
When searching for loans, you will see an additional percentage next to the loan’s amount. The interest rate reflects how much you will pay yearly to borrow money. Typically, this rate rolls into your monthly payment. You can determine your interest based on your credit history and loan term. You will pay less toward interest rates as you pay off your auto loan.
Your Loan’s Principal
Another common term you will see in auto loans is the principal. A loan’s principal is the full amount you borrow for your vehicle. This includes the taxes and additional fees without the interest rate. For example, if you’re purchasing a car that costs $45,000 and put down $8,000, you’ll finance the remaining balance. The remaining $37,000 is your loan’s principal.
Did you know you could get penalized for paying off your loan early? Some loans include a clause that charges you for paying off your auto loan before the term agreement ends. For example, you will pay a fee if your loan term is 12 months but you pay it off in 10 months. This recoups the money the lender lost just because you are a superstar. Before agreeing to a loan, always ask about a prepayment penalty.
Annual Percentage Rate (APR)
A loan’s annual percentage rate (APR) is the total cost to borrow the loan, including the interest rate, origination fees, and other expenses. A loan’s APR may also be called a prepaid financing charge, and it reveals how much you pay monthly. Sometimes, you can negotiate these fees to lower the total price. So, weigh all your options before choosing a lender.
Are you searching for a reliable lender? Superior Financial offers auto loans for everyone, regardless of their credit score or history. Contact our agents and get a car loan today, whether you’re looking for a new car or a company vehicle.