Annual Percentage Rate or APR – The Annual Percentage Rate is simply the borrower’s total cost of credit. It is articulated as an annual percentage of the amount of the credit given. APR usually covers all the fees and expenses that are required to acquire the auto- loan. According to Federal law, the lender must always disclose the APR.The APR is also a consumer’s best tool for comparing different loans with the same loan term. As the general rule of thumb, the lower APR is always the better deal. 

Loan Term: The loan term is basically the duration of the loan. This is usually broken down into months. It is a given that the longer the term, the lower the monthly payment.

Although lower monthly payments may sound good, a long loan term also yields significant drawbacks such as a higher interest cost, more debt, and at times, trade inequity if a vehicle is traded-in within the first three years.

Hence, extending loan terms is not usually advisable. A borrower must always consider the lower APR, not the lower monthly payment.

Down Payment: The down payment is the total amount of money the borrower initially hands to the lender at the time of purchase of the vehicle and the origin of the loan. Therefore, the down payment is actually the initial portion of the total amount due of the vehicle. Down payments do not include incentives, rebates or trade equities.

After the final sales price of a vehicle is adjusted to consider tax, trade inequity and other expenses, the down payment is then credited to reduce the overall sales price (because it has already been initially paid for).

Interest Rate: The interest rate is a part of the APR equation that reflects the annual rate of return that the lender earns on the principle of the loan. In other words, the interest rate is what lenders look at to determine how much they will earn in a particular loan.

Principal: The principal is basically the original amount of the car-loan where the interest is derived from.

Credit Score: A Credit Score is a number that is derived from the statistical examination of a person’s credit history as indicated by a person’s credit report. The credit score represents a person’s reliability when it comes to paying debt. A person with a good score benefits from lower interest rates in loans because that person poses less risk to lenders. The opposite holds true with people with a bad credit score. At times, a bad credit score also prohibits a person from availing of certain loans.