Car Loan Terms

When shopping for a car loan, it is important to know the definition of the terms you might encounter. Being aware of these terms will help you better negotiate how much you will pay, and understand the dealer’s pricing of the car.

Annual Percentage Rate, or APR, is the most important term to know. This is the yearly cost of your loan, and is similar to an interest rate, but includes other fees and charges. Another is ‘amount financed’, to determine this you need an equation: you multiply the interest rate by the purchase price. Then, you subtract the total from the purchase price; add state taxes and subtract the down payment. This is the amount financed.

Other important terms include ‘dealer charges’, which are the costs the dealership charges for extras such as extended warranty; ‘dealer holdback’ which is a kind of allowance from the manufacturer to the dealer, and ‘dealer invoice’ which is what the dealer was billed for the car. Also be aware of the definitions of: destination charge, factory-to-dealer incentive, manufacturer suggested retail price, or MSRP, mark-up, and monroney sticker price, as they all play an important part in your loan process.