Finance Terms Explained in Gainesville, FL

Here at Parks Ford Lincoln of Gainesville, we get it. Financing a new or used car can be overwhelming, from having to pull together documents to reading the fine print. There's a lot to comprehend and read through before signing your name by the X on that contract. But we want to help. That's why we've compiled a list of some of the most common finance terms with explanations. We want you to feel more confident when signing a loan contract, so keep reading to learn more!

Most Common Finance Terms

Finance

Financing simply means you're borrowing money from one of our lenders or a bank of your choice so you can purchase your desired vehicle. Basically, the lender is purchasing the vehicle for you, and you then repay the loan over an agreed term and interest rate. When financing, the lender allows you to borrow money while you pay them back with interest.

Leasing

Leasing is essentially extended renting, but it's a great way to try out new cars that are still under warranty. You'll just return the vehicle at the end of the agreed term. Customers pay a down payment, usually 20% of the vehicle's value, followed by monthly payments until the end of the term. Typically, a lease term will run anywhere from 24 to 36 months, although they can go up to five years or 60 months. Once your term is up, you can return the car, or you have the option to buy it.

Term

This is an easy one. The term is simply the set amount of time for a loan or lease. For example, the term on a 36-month loan is 36 months, or three years. Shorter terms usually mean higher payments but lower interest rates. When agreeing to a loan, you should make sure the loan term matches your budget.

Principal

The principal refers to the initial size of the loan, which is that big number you want to chip away at. For example, if you finance a car that costs $18,000 but put down $2,000 for your down payment, your principal you'll have to repay would be $16,000.

Money Down

The more you can put down, the better. Money down is how much money you place up front on a loan, sometimes called a down payment. If you put more down up front, your monthly payments will be lower. Say you purchase a vehicle listed at $20,000 but pay $5,000 down, you'll only have $15,000 left to repay. Money down isn't charged interest. Dealerships usually require a large down payment to secure a desirable interest rate.

Interest Rate

When you take out a loan, you're usually charged interest. This is the fee added onto your monthly payments, and it protects lenders from risky customers who may not repay the loan. You may also hear the interest rate referred to as the APR, or annual percentage rate. APR is determined by several factors, including your credit score, the term length and the age of the vehicle being financed.

Cash Back

Cash back is an incentive from manufacturers to encourage you to purchase a vehicle. It can shave off thousands of dollars on your vehicle purchase price, or the dealer can write a check for the amount advertised. You can usually use the cash back as the down payment and reduce the selling price, or you can walk away with a check in hand.

Rebate

A rebate is an incentive that is usually applied to the selling price of a vehicle, but only after purchase. Once all the paperwork has been completed, the dealer will write a check for the rebate amount or give you cash on hand. Cash back is instant, but you may have to wait on a rebate to arrive.

Trade-In

When trading in, you're offering your old vehicle to the dealership for credit towards the new vehicle that you want to purchase. By doing so, you can take thousands of dollars off the asking price, although you'll probably end up financing the new car anyway.

Depreciation

Depreciation is when a car loses value. It happens year after year until the value is zero. You should happen to remember that depreciation affects every car, regardless of its condition. A brand new car loses around 10-20% of its value just by driving off the lot. In five years, that brand new vehicle will shed 60% of its original value, no matter how pristine you've kept it.

Equity

Equity is the difference between what the car is worth and how much you still owe on it. If the value of your car is $15,000, but you still owe $6,000 to the lender, you have $9,000 in equity. It's important to keep this ratio balanced and not gain negative equity; this means you owe more on the loan than what the car is worth.

Upside Down

This is what we refer to as negative equity, as previously mentioned. Owing more on the vehicle than what it's worth makes it difficult to sell, and negative equity can follow you into a new loan. If you finance with us here at Parks Ford Lincoln of Gainesville, we'll try to help keep you from making this error.

If you have further questions or would like to know more, give us a call or visit us at 3333 North Main St., Gainesville, FL 32609. We look forward to serving our customers from Alachua, Starke, Ocala and Lake City.