Auto loan terminology

In the world of finance, there are terms and phrases that can be confusing. If you're searching for Idaho auto loans, use this handy guide to make sure you understand the terminology your lenders will use, from interest to trade-in and principal. If you don't understand a phrase, be sure to ask for an explanation. Don't take out a loan that you can't understand.

Amortization

The paying off of debt in set installments over a given period of time. For a car loan, this is typically 36, 48 or 60 months.

APR

Annual Percentage Rate, is the interest paid for credit received.

Balloon loan

Commonly used in mortgages, in auto loans this applies to a loan in which you have small monthly payments, and then a large "balloon" payment at the conclusion of the loan.

Credit score

Also known as your FICO score, it's the number used by credit agencies to determine your overall creditworthiness. The higher your credit score, the easier it will be to obtain financing at preferable interest rates.

Credit bureau

There are three primary credit bureaus, Equifax, Experian and TransUnion, which monitor your information in relation to credit and public records, and release ratings to banks and other institutions. You can visit their Web sites to make sure your information on file is accurate.

Down payment

The amount of money you pay initially when purchasing a car. The more you pay up front, the less your overall loan will be.

Interest

This is the percentage you pay your lender for the use of money you borrow. In this case, the money used to purchase your car.

Principal

This is the balance on your loan - the amount you owe. Every payment you make includes principal and interest. You gradually pay down the principal balance, and thus the balance of the loan.

Term

The duration of your loan. Most auto loans are 36, 48 or 60 months. The shorter the term, you will pay more each month but less interest overall. Longer-term loans have smaller monthly payments, but you will pay more interest in the long run.

Trade-in value

The estimated value of the vehicle you are trading in when purchasing a car. You can learn more about your car's trade-in value by doing an Internet search prior to visiting your dealership. Your car's condition and age will be factors in its trade-in value.

If you have questions that have not been answered so far, you are probably not the only person with that question. Look through our frequently asked questions for answers.