Auto Loan Terms Explained
The terminology used in car loans can be confusing. It's important to know
exactly what your loan contract means before you sign the paperwork.
Acceleration Clause
An agreement that takes place after signing your auto loan papers (not all car
loans have this) that says that if you don't make even one payment that the
entire balance of your loan is due immediately. Yikes!
Amortize
Also known as Loan Amortization: A loan that is paid off in regular and usually
equal monthly payments over the term (length) of the loan.
Appreciation
The process where something’s value will rise or “appreciate”. Pretty rare with
cars, which is why you always want to buy at the lowest price possible!
Annual Percentage Rate
Also known as “APR”, “Interest Rate” or “Loan Rate”. The rate charged on a loan
over a year. A 10% APR would cost you $100 per year. The APR tells the buyer how
much the loan really costs per year.
Assets
The things you own like a house, cars, etc. If those “things” are financed then
what you owe on the loan is a liability and the amount you’ve paid off are
assets.
Collateral
These are assets that you will use as collateral to secure a loan. If you don’t
pay the loan then the finance company can take the assets you put up as
collateral.
Credit Line
Also known as “A Line Of Credit”. This is a type of loan where you draw money on
it as you need it.
Depreciation
This is the amount that an asset loses over time. Once again: Cars depreciate.
This is fact – so always buy low, unless you like to burn your money!
Interest
This is the amount that a finance company charges you for letting you use their
money.
Late Payment Charge
Also known as the "Overdue Payment Charge" or "Delayed Payment Charge". If
you're late on your car loan payment then you may be charged a late fee in
addition to your regular monthly payment.
Next: Auto Loan Terms - Part 2