Here are some terms used in automobile financing that can serve as guide when checking out car loans:
Interest Rate:
This refers to the rate of interest that you will be charged based on the amount of money you borrowed. They can either be fixed or variable. Fixed interest rates mean that the amount is set for the whole duration of the loan. Variable interest rate, on the other hand, fluctuates and is dependent on the prime rate. For instance, the interest rate is set at prime plus 2 points. Assuming that the prime rate is 3%, the interest would be 5%.
Pre-Payment Penalties:
This refers to the penalties you will be charged in case that you decide to pay the balance of your car loan in a shorter period of time than what is negotiated from the start. The amount of pre-payment penalties is determined during the contract signing.
Loan Term:
Loan term refers as to how long the loan will last. For instance, a certain amount is borrowed on a 4-year term; you have to pay for that specific amount plus the interest that will accumulate in 4 years. Majority of car loan terms are 2-5 years.
Car Insurance Clause:
Majority of the lenders will advise you to keep full coverage of car insurance on a financed car. This way, no matter what happens to the car, you are entitled to receive the necessary amount to pay the financing company. The value of a car deteriorates quickly. It is best to get an insurance that will give back the full amount of the car loan. If not, you might just be paid based on your car’s value which may not be enough for you to pay your loan.
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