Finance Terms Explained in Alpharetta, GA

Here at Angela Krause Lincoln, we get it. Financing a new vehicle can be overwhelming. From having to pull together all the documents to reading all the fine print, there's a ton to comprehend before you sign your name by the X. But we want to help. We've explained some of the most common finance terms you're bound to hear, so you can feel more confident when signing a contract.


Most Common Finance Terms

Finance

In simple terms, financing just means borrowing money from one of our lenders or a bank of your choice so you can purchase your desired vehicle. The lender buys the vehicle for you, and then you repay the loan over an agreed term and interest rate. When financing, the lender is giving you the service of borrowing its money while you pay them back with interest.


Leasing

Essentially, leasing is like extended renting. It's a great way to try out a new car that's still under warranty. You're agreeing to return the vehicle at the end of the lease term. Typically, customers pay a down payment, although some lease specials require zero down, followed by monthly payments until the end of the lease term. A typical lease term can last anywhere from 24 to 36 months, but it can go up to 5 years. Once your term is up, you can return the car or purchase it.


Term

Simply put, the term is the set amount of time for a loan or lease. To give an example, the term on a 36-month loan would be 36 months, or three years. Usually, shorter terms mean lower interest rates but higher monthly payments. When agreeing to a loan, make sure the loan term fits your budget.


Principal

The principal refers to the initial size of the loan, which is that big number you want to chip away at. For example, if you finance a car that costs $18,000 but put down $2,000 for your down payment, your principal you'll have to repay will be $16,000.


Money Down

The more money down you can put, the better. Money down is how much money you place up front on a loan, and it's sometimes referred to as a down payment. The more money you're able to put down, the lower your monthly payments will be. If you purchase a vehicle listed at $25,000 but pay $5,000 down, you'll only have $20,000 left to repay. Money down isn't charged interest, and dealerships usually require a large down payment to secure a desirable interest rate.


Interest Rate

You're usually charged interest when you take out a loan. This is the fee added onto your monthly payments, as it protects lenders from risky customers who may not repay the loan. You may also hear it referred to as the APR, or annual percentage rate. APR is determined by a number of factors, including your credit score, the term length, the age of the vehicle being financed and other relevant factors.


Cash Back

Cash back is always a sweet deal. It's basically an incentive from the manufacturer to encourage you to purchase a vehicle. It can shave off thousands of dollars from your purchase price, or the dealer can write a check for the amount advertised. You can typically use the cash back as the down payment and lower the selling price, or walk away with a check in hand.


Rebate

You've probably heard this term before. A rebate is an incentive that is usually applied to the selling price of a vehicle, but only after purchase. Once all the paperwork is done and completed, the dealer will write a check for the rebate amount or give you cash on hand. Cash back is instant, but you might have to wait on a rebate to arrive.


Trade-In

When trading in, you're offering your old or current vehicle to the dealership for credit towards the new car or SUV that you want to purchase. By trading a vehicle in, you can take thousands of dollars off the asking price of your new vehicle.


Depreciation

In simple terms, depreciation is when a car loses value. It continually happens, year after year, until the value is zero. Depreciation happens to every vehicle, regardless of its condition. A brand new vehicle loses around 10-20% of its value just by driving off the lot. In five years, that brand new vehicle will lose 60% of its original value, no matter how pristine you've kept it.


Equity

Equity is the difference between how much your car is worth and how much you still owe on it. For example, if the value of your car is $15,000, but you still owe $6,000 to the lender, you have $9,000 in equity. It's important to keep this ratio balanced and not gain negative equity.


Upside Down

This is what we refer to as negative equity, as previously mentioned. Owing more on the vehicle than what it's worth makes it difficult to sell, and negative equity can follow you into a new loan. If you finance with us here at Angela Krause Lincoln, we'll try to help keep you from making this error.


If you have further questions or would like to know more, give us a call or visit us at 1555 Mansell Road Alpharetta, GA 30009. We look forward to serving our customers from Sandy Springs, Cumming, Gwinnett and Duluth.