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Finance Terms to Know
Sometimes, shopping for a new car, whether you are buying or leasing, can be intimidating because of all the fancy finance terms used by dealerships to negotiate, lease, and sell vehicles. It can seem like you need to learn an entirely new language in order to communicate effectively. Don't worry--Mama's Used Cars can help – here's a basic list of terminology that can help you to better understand the car-buying or leasing process.
 
  • APRthe “Annual Percentage Rate” is the amount of interest you pay annually while financing, plus any other fees and expenses. The APR is typically based on your credit rating as well as the amount you’re financing. A lower interest rate may lead to lower monthly payments for most drivers.
     
  • Black Book  -  This is the value of a vehicle as determined by data collected from wholesale car auctions. It is similar to Blue Book.
 
  • Blue Book Value  - This is the value of a vehicle as determined by Kelley Blue Book.
 
  • Credit  - A financial way to look at your ability to repay a loan. It considers information such as your length of credit, type of credit, and debt-to-income ratio.
 
  • Debt-to-Income Ratiothis term refers to the amount of debt you have compared to your income. Most lenders use this ratio to help determine what your annual monthly payments should be. Most lenders prefer to see a DTI ratio of 40 percent of less before financing.
 
  • Delinquencymaking late car loan payments or failing to pay. Delinquent payments can drastically affect your credit rating, making it doubly important to establish automatic payments and to pay bills on time.
 
  • Depreciation  - The gradual decline in a vehicle’s value over time. This slows down the older a car gets.
 
  • Down Payment  - The money you pay up front when you purchase a car to lower the total amount financed.
 
  •  Electronic Fund Transfer (EFT) – an EFT is the transfer of money from one account to another using computer-based systems. Instead of bringing cash or a check, EFTs are a reliable and safe way to pay for a car, especially considering if you’re paying a large some. In some locations, EFTs may be called “e-checks.”
 
  • Finance Charge  - The total amount of interest you will be charged over the life of a loan.
 
  • List Price  - This is the price the vehicle manufacturer recommends a dealer place for a new car. It is also called MSRP or sticker price.
 
  • Lienpronounced “lean,” a lien is when a vehicle is owned by a finance company until all the debts have been paid. For most car owners that choose to finance, there will be a lien on your car. Once you finish making all the payments, the financer will send you the vehicle title in the mail.
 
  • Monroney Sticker  -  The price sticker on all new vehicle that includes all the vehicle’s options. It is required by federal law.
 
  • Pink Slip  - Also known as the vehicle title or certification.
 
  • Principal  - The total amount owed on a loan, excluding interest.

 
  • Proof of Income – your POI refers to the evidence a lender requires to show that you make as much money as you say you do. For most people, POI includes pay stubs, employment verifications, and/or bank statements that show a borrower’s income. POI is used to determine your creditworthiness.
 
  • Refinancingthis is when you finance an existing loan with a new lender. Many people do this in order to lower their monthly payments, to change interest, or to modify terms of their loan. Refinancing is great for people with improved credit or who can make higher monthly payments after an initial purchase or loan.
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