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Common Auto Loan Terms
Legal documents can be confusing because they often use unfamiliar terms. Auto loans include lots of specialized terminology, but you will be off to a good start if you know just some of the popular auto loan lingo.
Amount Financed – The amount financed is the initial dollar amount borrowed to cover the cost of purchasing a vehicle. This amount does not usually include the interest rate cost or other fees.
Branded Titles – Auto titles can be branded if the vehicle is involved in an accident and undergoes extensive repairs. Most banks and other lenders will not associate with a loan on a branded title because there is significantly more risk involved.
Default – A default occurs if you do not pay your loan on time. Your bank or other lender may repossess your loan’s collateral at this time.
Finance Charge – Finance charges are paid in addition to the initial cost of the vehicle and include the interest to be paid, which is determined by your credit rating. Other fees may also apply.
Guaranteed Automobile Protection – Some dealerships offer insurance coverage on new vehicles for a short period of time. This gives the new owner time to purchase insurance.
Lien – An auto lien typically accompanies an auto loan. A lien gives your lender the legal right to repossess your car if you are unable to make payments as dictated by the loan.
Maturity Date – The maturity date of the loan is most commonly the preset date on which the loan will be paid in full. In some cases the loan contract may be renegotiated at this time if the loan has not been fully repaid.
Principal – The principal is the amount that you owe on a loan, excluding the interest rate amount that is determined by your credit rating.
Buying a car can be tough financially, that's why auto loans were created. Auto car loans can help consumers purchase or lease cars that they can't afford outright. Just like a home mortgage, consumers pay monthly fees on a loan according to specific terms and conditions. The interest rate, combined with the monthly term, sets the amount you pay each month. Eventually, you may own the auto free and clear, or decide to renew the lease or sell it.
So who gives out auto loans and approves applications? Banks, credit unions, and other financial institutions usually administer loans on new and used cars. More and more peer-to-peer lending sites are popping up online, presenting an additional option for consumers.
Before signing on the dotted line, consumers must shop around for the best interest rates on auto loans, just like they would for the car itself. Since they must apply for a loan and be approved, getting different quotes beforehand gives consumers power over their decisions. Costs vary from lender to lender. Before buying a car or truck from a dealer, the consumer needs to secure a finance deal. For this, they usually head to their local bank.
Banks can also advise on vehicle title loans for consumers that are strapped for cash. However, these title loans often feature high interest rates and are generally thought of as a bad idea. A good place to research auto loans is on the Internet. Certain sites can do the legwork for you, comparing and contrasting several different loan companies, and presenting the one that suits you best.
Depending on your credit situation, you will pay a low or high monthly payment for your car or truck. Many auto loan providers offer finance options no matter what your credit history looks like.