What are some important terms on a car loan?

I'm getting a car loan, but I’m not good with financial jargon. What are some of the most important terms to know?

Answer
It’s always wise to read the fine print before you sign a contract. Knowing the terms associated with a car loan can help you make the best decision for your financial situation. Here are most of the basic terms you’ll find in a car loan agreement:
  • Principal: the amount of money you borrow initially (once you begin payments, the amount remaining on your loan)
  • Interest rate: how much extra money you pay on top of the principal (in percentage format)
  • APR: annual percentage rate, calculated by adding applicable fees and taxes to your interest rate
  • Loan term: how long your car loan lasts, usually between 12 and 84 months
  • Cosigner: a person who agrees to pay for the loan if you default on your payments
  • Default: failing to pay your agreed-upon car note payments
  • Debt-to-income ratio: a ratio used by lenders to assess your creditworthiness (how much you owe divided by how much you earn each month)
You’ll need a good car insurance policy if you go through with a car loan. Jerry can help you compare quotes, secure a new policy, and answer any insurance questions you have with a team of dedicated agents.
Eric Schad
Answered on Oct 21, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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