If you purchase a vehicle at a dealership, the salesperson may refer you to someone in the F&I or business office. This is the part of the dealership that markets loans and optional add-ons to customers after they have agreed to buy a vehicle at the dealership.
With a fixed rate, you can see your payment for each month and the total you will pay over the life of a loan. You might prefer fixed-rate financing if you are looking for a loan payment that won’t change. Fixed-rate financing is one type of financing. Another type is variable-rate financing.
In order to get a loan to buy a vehicle, you must have insurance to cover the vehicle itself. If you fail to obtain insurance or you let your insurance lapse, the contract usually gives the lender the right to get insurance to cover the vehicle. This insurance is called “force-placed insurance.”
You don’t have to buy this insurance, but if you decide you want it, shop around. Lenders may set varying prices for this product.
GAP insurance covers the difference (or gap) between the amount you owe on your auto loan and what your insurance pays if your vehicle is stolen, damaged, or totaled
An auto loan’s interest rate is the cost you pay each year to borrow money expressed as a percentage. The interest rate does not include fees charged for the loan.
The federal Truth in Lending Act (TILA) requires lenders to give you specific disclosures about important terms, including the APR, before you are legally obligated on the loan
An auto loan’s APR and interest rate are two of the most important measures of the price you pay for borrowing money. Since all lenders must provide the APR, you can use the APR to compare auto loans. Just make sure that you are comparing APRs to APRs and not to interest rates.
This is the length of your auto loan, generally expressed in months. A shorter loan term (in which you make monthly payments for fewer months) will reduce your total loan cost. A longer loan can reduce your monthly payment, but you pay more interest over the life of the loan. A longer loan also puts you at risk for negative equity, which is when you owe more on the vehicle than the vehicle is worth.
A loan-to-value ratio (LTV) is the total dollar value of your loan divided by the actual cash value (ACV) of your vehicle. It is usually expressed as a percentage. Your down payment reduces the loan to value ratio of your loan.
By signing a contract with a mandatory binding arbitration provision, you agree to resolve any disputes about the contract before an arbitrator who decides the dispute instead of a court. You also may agree to waive other rights, such as your ability to appeal a decision or to join a class action lawsuit.
Manufacturer incentives are special deals, like 0% financing or cash rebates that you may have seen advertised for new vehicles. Often, they are offered only for certain models.
The Manufacturer Suggested Retail Price (MSRP) is the price that the automaker – the manufacturer – suggests that the dealer ask for the vehicle.
If you owe more on your current auto loan than the vehicle is worth-referred to as being “upside down”-then you have negative equity. In other words, if you tried to sell your vehicle, you wouldn’t be able to get what you already owe on it. For example, say you owe $10,000 on your auto loan and your vehicle is now worth $8,000. That means you have negative equity of $2,000. That negative equity will need to be paid off if you want to trade in your vehicle and take out an auto loan to purchase a new vehicle.