Do you plan to get vehicle finance in Hutto? If yes, your brain might feel like it’s melting into Jell-O as you try to understand vehicle financing terms and conditions. With the aim to make your vehicle finance in Hutto journey easier, we compiled a list of eight common car finance terms. Understanding the meaning of each vehicle financing term will not only make you confident but will help get you a better deal. So, without any further ado, let’s learn the most frequently used terms in the world of vehicle financing.
Common Vehicle Finance Terms include:
- Interest Rate
- Down Payment
- Prepayment Penalties
- Annual Percentage Rate (APR)
- Manufacturer's Suggested Retail Price
- Truth-in-Lending Disclosure (TILA)
- Amortization
- Extended Warranty
1. Interest Rate
“Interest Rate” on a car loan can be defined by how much money you need to pay annually without factoring in any fees. If you have opted for installment payments, the interest rate affects your monthly payments. So when comparing two vehicle finance in Hutto offers, we recommend paying close attention to the interest rate and APR as it helps you understand what extra amount you will be paying as compensation for the loan.
2. Down Payment
Also known as the “Upfront Payment,” a down payment is a significant percentage of the cash you pay the dealer or private seller against the total price of your car. The purpose of the down payment is to minimize the amount you need to finance. Simply put, the bigger the down payment, the smaller the loan will be. The down payment should be 10% for a
used car and at least 20% for a
new car. This will ultimately result in reducing the interest rate, making vehicle financing more affordable.
3. Prepayment Penalties
If you believe repaying the loan before the end of the term is good, you are mistaking yourself. Deep down in the fine print, you might read the term “Prepayment Penalty.” This is basically the amount that you need to pay the borrower in case you have completed the loan payments before your loan term ends. This is the compensation for the interest the lender might have otherwise earned. Not all finance offers have prepayment penalties.
4. Annual Percentage Rate (APR)
Understanding the “Annual Percentage Rate” is vital if you want to get good vehicle finance in Hutto deal. APR can be defined as the total cost of borrowing money, including fees charged by the lender and interest rate. APR is one of the best ways to compare the cost of different loans. For example, if you have offers from two different lenders, the first offering you an APR of 4% and the second advertising a 2.5% APR, taking the second loan will cost you less money on interest over time. Pro-Tip: When comparing the ARP of a car, ask the dealer if the rates are variable or fixed. While a fixed ARP stays the same throughout the loan repayment period, a variable APR decreases or increases depending on the Prime Rate.
5. Manufacturer’s Suggested Retail Price (MSRP)
Otherwise known as the “Base Price,” the Manufacturer’s Suggested Retail Price (MSRP) is the original cost of the vehicle, without any add-ons. The price at which the vehicle is sold might be higher as it includes extended warranties, upgrades, and additional equipment.
6. Truth-in-Lending Disclosure (TILA)
“Truth-in-Lending Disclosure” is a document that provides the lender with key information about the loan. TILA obligates the financier to provide you with complete information about the loan’s terms and conditions. This document includes Loan APR, Amount Financed, Finance Charges (Interest and Fees), and the Total Payment.
7. Amortization
“Amortization” describes your auto loan repayment process. When you view your amortization schedule, you will see the amount of your payment that applies to principle increases while the interest gradually decreases. Monthly payments are a set amount, you will see a higher percentage of your payment as interest at the beginning of a loan and a large amount as principal at the end of the loan term.
8. Extended Warranty
When buying a used or brand-new car, the dealership will ask you if you want to purchase an extended warranty. “Extended Warranty” is usually provided by the dealership, and it covers the basic repair and maintenance for a longer period after the original manufacturer’s warranty has ended. Whether you should pay extra for a longer warranty depends on several factors, such as how long you plan to own the car, the age of the vehicle, and how much cash you have in reserve to cover the vehicle’s maintenance and repairs.
Car loans can vary a lot, therefore, it is important to do your research before finalizing a deal. When looking for vehicle finance in Hutto, it is wise to talk to different lenders and compare the loan terms and conditions, fees, interest rates, loan amount, and repayment terms. The best way to do this is by understanding the common vehicle financing terms and improving your credit score.
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