Common words and phrases for subprime auto loans
When you get a car loan – subprime or whatever – there are a lot of terms you might not be familiar with. The best way to deal with any situation is to be prepared, so we’ll help arm you with the knowledge you’ll need to finance a vehicle.
Basic loan conditions to know
It’s good to know the basics of the loan if you are going to get a loan. Here are some words and phrases you should know:
- Funding – that’s what you do when you get a loan. Funding is the act of borrowing money to make a purchase.
- Main – the amount of money you borrow.
- Interest rate – interest is what you are charged for borrowing money. An interest rate is used to calculate the amount you will pay the lender to make the loan. Interest rates vary based on prime interest rate (banks charge their best borrowers), lender, your credit score, etc.
- Simple interest – Most auto loans are simple interest, which calculates interest daily based on your outstanding loan balance.
- Interest charges – the amount of money you pay in interest over the life of a loan.
- Term – this is the term of the loan. For auto loans, the duration is always expressed in number of months.
- Advance payment – this is the initial amount you pay up front when you make a finance purchase. A good-sized down payment helps show a lender that you are serious about your loan.
These phrases can be applied directly to the numbers on a loan. For example: you finance a car for $ 20,000 at seven percent for 60 months. The principal is $ 20,000, seven percent is your interest rate and 60 months is the term of the loan. If you pay off this loan as scheduled, you will pay $ 23,761.44 after five years. Of this amount, $ 3,761.44 will be interest charges.
Common concepts in auto loan
There are other common car loan concepts that you will need to know about during the process of getting a car loan. Some relate to the process of exchanging or selling a vehicle.
- LCA – This represents the actual cash value. This is the fair market value of a vehicle at all times, such as when it is sold or traded.
- Equity – You have equity in a vehicle if the loan balance is less than the vehicle’s ACV.
- Negative equity – You have negative equity if the loan balance is greater than the vehicle’s ACV, which is also known as being upside down or underwater.
Knowing these terms can help you understand when to get the most out of your vehicle. If you use a large down payment or make loan prepayments, you can reduce the time your vehicle is underwater.
If you sell or trade a vehicle fairly, you can keep the cash or use it as a down payment on the new car. If there is negative equity, you will either need to make up the difference between the ACV and the loan balance out of your pocket, or build it into the new loan.
Start your search here, now
Now that you know the basics of the most common auto finance concepts, it’s time to start looking for the right lender for your situation. Because buying a car with bad credit is different, you’ll also want to take a look at your finances and budget.
You can find the right combination of dealer and lender by making sure the dealership you are visiting can handle your situation. If you have bad credit, not all lenders will be able to work with you and it will be very difficult to pre-qualify for a direct loan. Visiting a special dealership that has subprime lenders can be the key to getting the auto financing you need.
Fortunately, here at Auto Express Credit, we work with a large network of these resellers. So what are you waiting for? Fill out our online car loan application form without obligation today to start!