A Basic Car Loan Glossary

It can be confusing to understand all the jargon and terms in your new car loan, but hopefully this basic car loan glossary can help define some of these terms and help you understand just what your finance papers mean.

This is the interest that accumulates on the unpaid portion of the car loan.

Your sale purchase agreement. This states what you are buying and any other terms that apply (length of loan, how much you will pay, etc.).

Amortization is a process that is used to calculate your monthly payment.

Unlike the loan interest rate the APR calculates the actual cost of the car loan's credit. This number is represented by a percentage rate.

This is someone who is willing to assume any legal obligations for repayment of the vehicle in the event that the buyer fails to make his or her payments. Co-signers may be allowed depending on the buyer's (and co-signers) credit rating making the purchase of a vehicle possible when it was not before.

If you fail to make your payments you become delinquent after a set number of days as stipulated in your contract.

This is the statement of the total amount of the cost of the car loan. This includes the loan amount, the accrued interest and any miscellaneous finance and loan fees. In essence when you make your last payment this number is the final amount you will pay for your vehicle.

The amount of money you intend to put down when buying the car. This number will reduce the amount you will finance.

Amount of money you intend to borrow to buy your new car.

Any loan has interest on it. That is how banks and finance companies make their money. Car loan interest rates vary based on the size of your down payment and your credit history but 5% to 12% is typical. Car interest is compounded and calculated so that over the course of your loan will end up paying more than the percentage of your interest rate from the amount you borrow.

The length of your loan, this is the amount of time you have in order to pay back the money you borrowed. Car loans typically range from 24 to 60 months (2 to 5 years). The longer your loan is, the lower the payments will be, but also the more interest you will eventually end up paying in the long run.

Amount that you are required to pay on a monthly basis. Payments are applied first to any fees, then accrued interest, then to final principal loan balance.

This number represents the amount of the original loan plus capital interest.