Financing Basics

Helpful Information About Auto Loans

Annual percentage rate: The annual percentage rate, or APR, is a rate of interest, calculated yearly, that includes all the fees and charges associated with a loan. It is always tied in with a loan term. It might be, for example, 1.8 percent for 36 months, or 2.8 percent for 48 months. A lender will calculate monthly payments that reflect the APR over the term of the loan, and may include taxes, registration and closing costs, as well as destination charges if financed by a dealer. Since dealerships and other lenders charge different fees and expenses when they finance a car, the APR is the best way to compare one financing offer to another.

Rebate: A rebate is a gift to buyers, extended by the manufacturer (or, sometimes, the dealer) to encourage them to purchase a particular make and model. Typically, rebates are stated as a reduction in the selling price of the car, but they may also be expressed as an offer for a better rate of financing. These are called either-or offers. Rebates are most often attached to the slowest-selling vehicles. You should always ask about rebates and other incentives on a model you are interested in.

Front-Loaded Loans: Loans that require payback of mostly interest in the beginning so that the lender gets paid first

Simple Interest Loans: Also known as "flat rate interest," simple interest is calculated only on the initial amount of the loan by multiplying the principal balance by the rate of interest by the term of the loan. This number is then divided by the number of months of the loan for the amount of interest paid each month.

Upside-Down Loan: When you owe more on your car than it is worth

Inprove your Credit Score
You may be able to lower your interest rate by improving your credit score. Consider paying credit cards down below 50 percent of the card’s limit. Also, canceling high-rate cards or replacing them with a home equity loan can improve your credit score and allow you more leverage to negotiate a lower rate from a lender.