subject: Top 10 Terms to Know with Car Loans [print this page] Top 10 Terms to Know with Car Loans Top 10 Terms to Know with Car Loans
Obtaining a bad credit car loan is a helpful solution to buying a car if you have bad credit or no credit. As important as having a car is, it is equally important to understand the contract you will have to sign for your new purchase. By understanding just a few terms used in most car loan contracts, you will be able to sign on the dotted line with confidence.
Understanding the Numbers
Some companies will require the following from you:
A down payment: this is a one-time payment that is usually higher than the other payments you will have to make until the car is paid off. It is high enough to show that you are serious about making this purchase and is non-refundable.
The principle: This is the amount you have borrowed (the price of the car minus the down payment that was made).
Interest payments: these payments are calculated on the amount of the loan and are usually figured into the total payment you will make each cycle so that part of the payment you make goes to the principle and the rest of the payment goes to the interest. Interest rates vary depending on the company used and the down payment made. Typical interest rates for vehicles range from 4% to 25%.
Other Terms to Know:
Collateral: These are assets you promise to give the loan company if you don't pay off your loan.
Default: To "default" on a loan means that you didn't make the payments when you promised you would, in the amount you promised you would pay.
Repossessed: If you default on the loan, your vehicle may be repossessed by the loan company in other words, they may take the vehicle away from you.
Term: This is the length of time the loan will last (most car loans are for three years, but may be shorter or longer depending on the loan).
Prepayment penalty: Some companies charge this fee if you pay your vehicle off sooner than the agreed-upon time (and therefore save yourself money you would have otherwise paid in interest).
Cosigner: This is a person who agrees to assume responsibility for the loan if you are not paying it back as you should.
Title: This is the document that proves ownership of the car. The car loan company holds this document until you have completely paid off the loan at which time, the title is released to you.
If you find other terms in your vehicle loan contract that you don't understand, be sure to ask a trusted source for clarification before you sign the contract. Understanding all the terms of your loan will allow the car-buying process to go much smoother.
