Finance Terms Explained in Asheville, NC

At Asheville Lincoln, we understand that financing a new car can be overwhelming. From reading all the fine print to having to pull together all the documents, there's a lot to comprehend before signing your name by the X on that contract. That's why we want to help. We've explained some of the most common finance terms, and we want you to feel more confident when signing a contract.


Most Common Finance Terms

Finance

Simply put, financing means borrowing money from one of our lenders or a bank of your choice so you can purchase your desired vehicle. Essentially, the lender purchases the vehicle for you, and then you repay the loan over an agreed term and interest rate. When financing, the lender gives you the service of borrowing its money, while you pay them back with interest.


Leasing

Leasing is like extended renting, and it's a great way to try out a new car that's still under warranty. You're just agreeing to return the vehicle at the end of the lease term. Customers typically pay a down payment, generally 20% of the vehicle's value, followed by monthly payments until the end of the lease term. The typical term can last anywhere from 24 to 36 months but can go up to 5 years. Once your term is up, you can return the car or have the option to purchase it.


Term

In simple terms, the term is the set amount of time for a loan or lease. For example, the term on a 36-month loan would be 36 months, or three years. Shorter terms typically mean lower interest rates but higher monthly payments. When agreeing to a loan, make sure the loan term fits your budget.


Principal

The principal refers to the initial size of the loan, which is that big number you want to chip away at. For example, if you finance a car that costs $18,000 but put down $2,000 for your down payment, your principal you'll have to repay would be $16,000.


Money Down

The more you can put down, the better. Money down is how much money you place up front on a loan, and it's sometimes called a down payment. The more money you can put down, the lower your monthly payments will be. If you purchase a vehicle listed at $20,000 but pay $5,000 down, you'll only have $15,000 left to repay. Money down isn't charged interest, and dealerships usually require a large down payment to secure a desirable interest rate.


Interest Rate

When you take out a loan, you're usually charged interest. This is the fee added onto your monthly payments, and it protects lenders from risky customers who may not repay the loan. You may also hear the interest rate referred to as the APR, or annual percentage rate. APR is determined by your credit score, the term length, the age of the vehicle being financed and other relevant factors.


Cash Back

Cash back is a pretty sweet deal. It's an incentive from manufacturers to encourage you to purchase a vehicle. It can shave off thousands of dollars on your vehicle purchase price, or the dealer can write a check for the amount advertised. You can usually use the cash back as the down payment and reduce the selling price, or you can walk away with a check in hand.


Rebate

This is probably a term you've heard before. A rebate is an incentive that is usually applied to the selling price of a vehicle, but only after purchase. Once all the paperwork has been completed, the dealer will write a check for the rebate amount or give you cash on hand. Cash back is instant, but you may have to wait on a rebate to arrive.


Trade-In

When trading in, you're offering your old vehicle to the dealership for credit towards the new vehicle that you want to purchase. By doing so, you can take thousands of dollars off the asking price, although you'll probably end up financing the new car anyway.


Depreciation

Depreciation is when a car loses value. It happens year after year until the value is zero. You should happen to remember that depreciation affects every car, regardless of its condition. A brand new car loses around 10-20% of its value just by driving off the lot. In five years, that brand new vehicle will shed 60% of its original value, no matter how pristine you've kept it.


Equity

Equity is the difference between what the car is worth and how much you still owe on it. If the value of your car is $15,000, but you still owe $6,000 to the lender, you have $9,000 in equity. It's important to keep this ratio balanced and not gain negative equity; this means you owe more on the loan than what the car is worth.


Upside Down

This is what we refer to as negative equity, as previously mentioned. Owing more on the vehicle than what it's worth makes it difficult to sell, and negative equity can follow you into a new loan. If you finance with us here at Asheville Lincoln, we'll try to help keep you from making this error.

If you have further questions or would like to know more, give us a call or visit us at 611 Brevard Road, Asheville, NC 28806. We look forward to serving our customers from Weaverville, Hendersonville and Fletcher.