Automotive Finance Terms

If you find the finance process intimidating, we're here to set your mind at ease. When you're ready to finance your new or used car, our finance experts will be here to guide you through the process and answer any questions you may have along the way. We've compiled a list of commonly used finance terms and their definitions so you can feel more prepared. Whether you're new to the automotive financing process and are hearing some of these terms for the first time or you're in need of a refresher, you've come to the right place. Learn more below!

Finance

When you finance your new or used car, this means that you borrow money from a lender or bank of your choice to pay for the vehicle. In short, the lender purchases the vehicle for you so you can repay the loan over a specified term with interest.

Leasing

If you don't want to commit to buying but want to enjoy the benefits of a new car, leasing your next vehicle is a great option. Think of it as extended renting since you have to return the vehicle when the lease ends. You can expect to make a down payment upfront (which is usually 20% of the car's value) and then payments every month until the lease expires. Most leases last 24 to 36 months, but you may find some leases for 60 months (or five years). When the lease is up, you can either return the vehicle or buy it.

Term

In regards to a loan, term refers to the length of time you have to pay back a loan. For example, a 36-month car loan means that your loan term is 36 months. While shorter loan terms mean you'll have lower interest rates, your monthly payments will be higher. Keep this in mind when planning your budget.

Principal

The principal is the initial amount of the loan that you have to pay off. For example, if the vehicle you want to buy is $18,000, then $18,000 is the principal. Interest will then be based on this amount.

Interest Rate

Speaking of interest, the interest rate is the fee you pay for borrowing and is included every month in your car payment. Interest rates help protect lenders from risky customers in the event that they don't pay back the loan. Also known as APR, or annual percentage rate, your interest is determined by factors such as your credit score, the length of the term, the age of the vehicle being financed, etc.

Money Down

Money down is the amount you place on a loan upfront. If a car is listed at $20,000 and you pay $5,000, the remaining amount to pay is $15,000. Also called a down payment, that $5,000 won't be charged interest, therefore reducing your monthly payments. It's common for dealerships to require a large down payment to secure a preferable interest rate.

Cash Back

Dealerships may offer cash back as a way to encourage their customers to buy a car. This incentive may significantly reduce the selling price on your favorite vehicle, or the dealer can write a check for the amount advertised. For example, let's say a dealer offers $2,500 cash back on a car that's priced at $24,000. You can use the $2,500 as the down payment to reduce the actual price to $21,500, or you can pay full price and drive home with a $2,500 check.

Rebate

A rebate is an incentive that will be applied to the selling price of your car — but only after purchase. Once you've completed the paperwork, the dealer will write a check for the rebate amount or give you cash. Cash back is instant, but the rebate may come later.

Trade-In

A trade-in is the vehicle you're turning in to the dealership in exchange for credit toward your new or used vehicle of choice. Doing this may save you thousands of dollars off the starting price. If you've got a vehicle you want to trade in, let us know!

Depreciation

Depreciation is what happens when a car loses value over time, regardless of its condition. Did you know that a new car loses about 10-20% of its value once it's purchased? In five years, your new Chrysler, Dodge, Jeep, Ram or Fiat will shed 60% of its original value, regardless of how well-maintained you've kept it.

Equity

The difference between what the car is worth and the amount that you still need to repay on a loan is called equity. For example, if your vehicle is worth $15,000 but you still owe $6,000 to the lender, you have $9,000 in equity. Keeping this ratio balanced is crucial.

Upside Down

Negative equity, also known as being upside down, is when you owe more than what your vehicle is worth. While this is common, it makes your vehicle difficult to sell. If you choose us to finance your vehicle, we'll do our best to help you avoid this situation.

If you have further questions about these finance terms or terms not included on this list — or financing in general — we're here to help! Don't hesitate to reach out at any time or stop by our dealership at 4477 Ridge Rd W, Rochester, NY 14626. Ready to apply for financing? Head over to our finance application page or use our helpful payment calculator to find out what your monthly payment could be. We welcome customers from Rochester, Spencerport, Hilton and Greece, NY!