Auto Financing 101 in Auburn, NY

10 Financing Terms All Car Buyers Should Know

Are you looking to buy your next vehicle and have been pre-approved by an online lender, bank, or credit union? Ensure you are equipped with these ten financing terms to help you better understand auto financing so you can focus on finding an auto loan that meets your needs.

1. Monthly Payment - Before taking out a loan, knowing how much you'll have to pay each month to pay it off by the end of the term is essential. Make sure this amount fits your budget using a calculator to estimate your monthly payment with different loan terms and interest rates. Keeping your monthly payment affordable is critical.
2. Gap Insurance - If your vehicle is ever stolen or damaged beyond repair and you're no longer using it, some insurance companies offer gap insurance. This type of insurance covers the difference between what you owe on your car loan and the actual cash value of your car. Gap insurance may be a good option if you have paid off most of your vehicle loan. It protects you from having to pay out of pocket for any unexpected circumstances that may arise.
3. Credit Score - Knowing your credit score is essential when shopping for a vehicle. The credit score is a crucial factor that affects your ability to secure a loan and the interest rate you'll be charged. A higher credit score can help you get a lower interest rate, while a lower score can lead to higher interest rates. If you plan to shop for a loan, you must check your credit score beforehand to clearly understand what to expect.
4. Principal - The principal amount is the money you owe without including interest or other charges. It's important to know that the insurance you're quoted will be based on the principal amount. Having a lower principal means you'll pay less total interest.
5. Down Payment - Putting more money towards your vehicle purchase can help lower the amount of money you need to borrow. By making a larger down payment, you can reduce the interest rate on your loan over time. This means that you'll pay less in interest charges overall.
6. Depreciation - As a vehicle owner, you know that the value of your vehicle declines rapidly in the first year. However, investing in a used vehicle can help you save money in the long run. Used vehicles have already undergone the majority of depreciation, meaning they hold their value better than new vehicles. By choosing a used vehicle, you can make a smart financial decision and enjoy a reliable ride at a fraction of the cost.
7. Lease - If you're looking for a flexible way to get behind the wheel of a new car without committing to ownership, leasing might be just what you need. With a lease, you can enjoy driving a new vehicle for a set period of time and then decide whether to buy it, return it, or start a new lease. Keep in mind, however, that leasing comes with a few restrictions, such as a limit on modifications. But if you're someone who loves the thrill of driving a new car without a long-term commitment, then leasing is definitely worth considering.
8. Interest Rate (APR) -When you borrow money from a lender, you'll be charged an interest rate, usually expressed as a percentage. It's important to remember this number when looking for financing because a lower interest rate can save you a lot of money over the loan term. To find the best option for you, reach out to multiple lenders and compare rates.
9. Term - When you take out a loan, you'll have a certain amount of time to pay it back. This time period can be anywhere from 12 to 84 months. If you choose a longer repayment term, your monthly payments will be smaller, but you'll pay more overall interest. It's important to pick a loan you're comfortable with while also trying to pay the least interest possible.
10. Balloon Payment - When you choose to pay off a loan through smaller payments over time and then make a large payment at the end, it's called a "balloon payment." It's important to ensure your lender is ready for this big payment.

If you're planning on purchasing a new car but are unsure about the best auto loan options that are suitable for your situation, then equipping yourself with the right information can make a huge difference in your decision-making process. With our expert guidance, you can confidently choose an auto loan that works best for you and get behind the wheel of your dream vehicle in no time. If you have any questions about auto financing, our experienced finance department at Fox Toyota is always available to assist you. We are excited to help you make your dream car a reality.