Financing a new vehicle can be quite an undertaking, especially for first-time buyers. Lacking an understanding of the core financial terms and concepts can be a major liability, one that could make finding the best loan and financing options far more difficult.

Car-Terms-You-Don't-Know-But-ShouldLearning more about the following terms can provide you with the insight and understanding needed to make smarter choices.


The principle is the total amount owed minus the interest. Multiplying the interest rate by the loan term and then adding the total figure to the principle will provide the total amount owed on a vehicle loan.

The principle can also be important when it comes to calculating resale value and potential depreciation.

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Down Payment

The down payment is the amount that needs to be paid upfront when purchasing a new vehicle.

A down payment that is approximately 10 percent of the principal value of a vehicle is very common, however, there are many financing options that may require a smaller or larger down payment and even some that may not require a down payment.

Buyers who have bad credit or who may be struggling to meet other qualifications in order to finance a vehicle may be asked to make a larger down payment in order to be approved.

Interest Rate

The interest rate on a loan is the annual rate that is charged on the principal. Even a fractional interest rate can result in considerable savings over the long term and prospective buyers would do well to shop around in order to find financing options that are able to offer the lowest possible interest rate.

Interest rates are one of the most important aspects of a financing agreement and will be one of the car loan terms that prospective buyers can expect to hear quite often.

Loan Term

The amount of time that a buyer has to pay off a car loan is known as the term. While a loan that offers a longer-term will typically have much lower monthly payments, taking longer to pay off a vehicle in full often means paying more in interest.

Finding the right balance between long-term costs and monthly payments that are able to fit within their available budget should always be a top priority when shopping for a car loan.

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A warranty plan can help to cover the cost of any repairs that may be required once a vehicle has been purchased.

While most dealerships will provide a basic warranty, an extended package that offers additional protections or that extends the amount of time that a vehicle may be covered may cost extra.

The cost of an extended warranty is often added to the principle which can increase both total costs as well as monthly payments.

According to Lantern by SoFi, learning more about the basic terminology can be essential for “getting the financing you want.”

Learning more about basic car loan terms and the concepts behind them is often an essential first step towards finding the best deal on a new vehicle


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