Clearwater Area Kia Discusses Common Car Financing Terms

May 14, 2013

Buying a new car is generally one of the biggest investments you will make. If you’re going to spend a significant amount of money on a purchase, you will want to take the time to research the purchase and ensure you understand the financing agreement before you sign a contract. The financing terms will vary from one lender to another, depending on if you finance your new car purchase through a dealership, a bank, credit union, or third party lender but the basic concepts are the same. Here are some tips from your Clearwater area Kia dealer for understanding the common car financing terms and making sure you make a good decision on your investment:

Average Amount Paid for Cars in the United States

The price tag on cars depends on the make and model car you’re buying as well as whether you choose a new or used car. The Federal Trade Commission published the average cost for used cars in the United States are $15,000 while the average new car price tag is listed at $28,000. For the majority of car buyers, this means a loan is necessary to make the purchase.

Pre-Buying Research

The best car deals happen when buyers take the time to do their research before heading to the dealership. Before shopping, get a copy of your credit report from one or all three of the credit reporting bureaus. You can get one per bureau each year for free. Your credit report will give you a good idea for whether you have good or bad credit – and since your credit is a major factor in getting financing for a car loan you should know where you stand. If you have a ton of late payments and negative notations on the credit report, you probably will not qualify for a car loan, or if you do qualify – you’re going to pay a very high interest rate.

If you find errors in the reports you should take steps to correct the inaccuracies as it could be causing your credit score to be lower than it would be otherwise.

Car Loan Financing Terms

Make sure you understand the following car loan financing terms before you sign your name to the contract.

Loan Principal – the principal of a car loan is the amount you borrow, but it is less than what you will actually pay back over time due to the addition of interest and finance charges. The principal amount is reduced by the amount of your down payment and/or value of a trade-in vehicle.

APR (Annual Percentage Rate) – this is the rate of interest you are charged for the privilege of borrowing a car loan. It can range from 0% (ideal!) to double digit interest rates for individuals with poor credit.

Loan term – a term is how long you will repay the loan and generally ranges from one year to five years.