6 Essential Auto Loan Terms You Should Know

Need a refresher on loan term lingo? Here are six important auto loan terms that will help you better understand how your monthly loan payment is calculated.

1) Interest Rate: An auto loan's interest rate is the amount of money paid each year to borrow from a lender shown as a percentage. Additional fees are not included in the interest rate.

2) APR (Annual Percentage Rate): APR is the amount of money paid each year to borrow from a lender, including fees, shown as a percentage. The APR of a loan is best described as the "all-in" yearly cost you will pay.

3) Principal: the principal of a loan is the amount of money you initially agree to pay back, without the added interest.

4) Loan Term: A loan's term is a broad description that includes various details of the loan. The term typically includes the loan's repayment period, rates, and fees. For example, a new car loan's term may include a 60 month repayment period at an interest rate of 4.00%.

5) Maturity Date: The maturity date of a loan is the date when the principal amount of a loan becomes due. For example, if you took out a $20,000 car loan with a 72-month term, your maturity date would be reached at the end of the 72 month period.

6) Amortization: Amortizing a loan is a technique used to spread out payments over a certain period of time (usually the loan term's repayment period). This is a great way to plan monthly payments and repay your loan in full before its maturity date.

Use our Car Payment Calculator to get an estimated month-by-month payment schedule for your next loan.

 

How Are Car Loan Payments Calculated?
Some content requires Adobe Acrobat Reader to view.