Auto Loan Facts and Terms to Get You Started

August 26, 2016 | Mission Fed

Buying a new car is exciting! It’s also a major purchase, and you want to make sure you understand the process. There are a lot of things to consider beforehand. You can begin with figuring out the car’s make and model, price range and how you will pay for it.

Luckily, purchasing your new car can become a reality with an auto loan. Whether this is your first car or you’re looking to replace your current car with a new or used one, a Mission Fed Auto Loan allows you to put yourself behind the wheel with the financial flexibility that makes your car purchase affordable for your budget and lifestyle.

Start your car buying journey out on the right foot with these Auto Loan facts and terms that will help you decide what’s best for you and put you in the driver’s seat when it comes time to speak with an Auto Loan specialist.

First, let’s get the facts straight. Check out these need-to-know Auto Loan facts:

  • While the automobile powered by gasoline was invented in Germany in 1886 by Karl Benz, the big three automobile companies in the U.S. became Ford, General Motors and Chrysler by the 1920s. But how would someone afford a car during that time? If they couldn’t pay cash, they needed an auto loan from a financial institution! This caused quite a stir as to whether loans could be given out for cars that were meant for personal use and not business needs. Ultimately, vehicle ownership was declared an innate right as part of one’s pursuit of happiness.
  • You can get a car loan from a financial institution, the dealership or an online loan website.
  • Interest rates on car loans vary from lender to lender.
  • Car loans are not just for new cars. You can get an auto loan for a used car, to buy out your lease agreement or to refinance your original auto loan, too.

Secondly, it’s important to know how auto loans in San Diego work and familiarize yourself with some key terms you could see when applying for a loan.

An auto loan allows you to borrow money from a lender to pay back over time, meaning that you may not have to pay out-of-pocket for your new or used car. While that’s important to know, loans come with their own terminology, and knowing what these terms mean will help you prepare and understand how you will pay the loan back to your lender.

Here are some terms you should become familiar with in order to best understand your car loan:

  • Down payment: This is the initial amount you pay to reduce the amount of your loan before any interest is accrued. A down payment may be required to obtain a loan.
  • Annual Percentage Rate (APR): This is the yearly cost of the loan to the borrower. This is similar to the interest rate, but the APR also includes other fees and charges as to reflect the loan’s total cost.
  • Term: The term of a loan, commonly called the life of the loan, is how many months you have to pay the loan back. Typical auto loan terms run anywhere from 36 to 84 months.
  • Amount financed: This is your loan amount.
  • Lender: The assignee is the finance company, bank or Credit Union that either finances your loan directly or buys the loan contract from the dealer if you finance your car loan through a dealership.
  • Debt Protection: Protecting your loan balance or loan payments against involuntary unemployment, death or disability could help you protect your finances. Learn more about Mission Fed Debt Protection here.
  • Credit report: Credit reports are used to evaluate your auto loan application, as well as applications for credit, insurance, home loans and employment. Credit reports include information such as where you live and your credit history, including payment history to lenders and how much debt you owe, whether you have been sued or filed for bankruptcy.
  • Credit score: Your credit score is a number that represents your credit risk based on your credit file, including how often you pay your bills on time and how many lines of credit you have. The higher the score, the better your history of credit. This score may be factored in to decide your loan’s rate and term.
  • Extended warranty contract: This optional protection on some of your vehicle’s specific components supplements any warranty coverage provided with the vehicle. Generally offered at the dealer.
  • Finance charge: The amount that represents the cost of credit/borrowing or how much the loan will cost you.
  • Fixed rate financing: A loan where the interest rate stays the same over the life of the loan.
  • Guaranteed Asset Protection (GAP) Advantage: In case your vehicle is stolen or damaged beyond repair before paying off your loan and you owe more than your insurance company will pay, GAP Advantage will reduce or eliminate your remaining loan balance, and generally there is a maximum percentage of the Retail Book amount.
  • Monthly payment amount: This is the amount due each month to your lender on the auto loan. This payment combines both your principal balance due and the monthly interest accrued on your loan.
  • Option contract: Allows a buyer and seller to enter into a contract for the sale of goods or real property, but the sale is contingent upon certain terms, like a timeframe or an action. This may be securing financing for your new car.
  • Negative equity: This is the amount owed above a vehicle’s trade in value or the amount the dealer is paying you for the trade in. If your vehicle’s trade in value is $16,000 and your credit payoff (loan balance) is $20,000, your negative equity would be $4,000.
  • Negotiated price of the vehicle or cash price: The agreed-upon purchase price between the buyer and seller, which includes any rebates, discounts or special offers from the seller.
  • Total of payments: This is the total amount you have paid after all your scheduled loan payments, which is disclosed in your auto loan agreement.

The car buying journey is exciting and the more knowledge you have, the better decisions you’ll be able to make. If you’re ready to apply today, you can apply online or visit any of our 33 Mission Fed branches throughout the county.

The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article by Mission Federal Credit Union is for the information and convenience of its readers and does not constitute endorsement, control or warranty by Mission Federal Credit Union.

Mission Fed

Mission Fed

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