Common Finance Terms and What They Mean

Ever wonder why it feels like the sales reps on dealer lots are speaking a different language? The process of buying or leasing a vehicle can be very complex, especially when things like loans, down payments, and contracts are involved. Buyers and lessees are going to hear a lot of legal jargon that they just aren't used to in everyday life. Here's a quick run-down of some basic need-to-know terms.

APR, or Annual Percentage Rate: The amount of interest that you will pay on a loan annually, expressed as a percentage.

Blue Book: A shortened form of 'Kelley Blue Book,' which typically lists the value of a vehicle as determined by experts behind the publication.

Credit, or Credit History: 'Credit' simply refers to credit history, which allows lenders to determine your ability to repay loans according to your financial history.

Depreciation: The gradual decline of a vehicle's value over time due to age, wear, and similar factors.

Destination Charge: A fee that the manufacturer charges a dealership that covers the cost of shipping the vehicle to their location.

Down Payment: The amount of cash a new car owner or lessee offers upfront, which will reduce the amount owed and result in lower monthly payments.

Finance Charge: The total amount of interest charges you will pay over the life of your loan.

Lease: A system in which a driver borrows a vehicle from a dealership for a negotiated period of time and pays monthly payments that account for the vehicle's depreciation at the time of returning the vehicle to the dealership.

MSRP, or Manufacturer Suggested Retail Price: The base list price or sticker price for the vehicle.

Principal: The total amount owed on a loan that does not include interest.

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