Terms Used With Car Finance and Bad Credit Car Loans

The terms used with car finance and bad credit car loans can be confusing, so here are some of these and an explanation of what they mean. After reading this, terms such as balloons, auto equity and debt to income ratio will never confuse you again. Learn their language so you can speak to them on equal terms.

APR

The Annual Percentage Rate, or the true interest rate charged for a loan over a year – whether regular car finance or a bad credit loan.

Auto Equity Loan

When you purchase a car you normally get the papers or title to the vehicle. However, with many bad credit car loans, the lender gets the title in return for the cash to enable you to pay for it. You get the title once you have repaid the loan. This way, if you default on your payments, the lender keeps the car and can sell it to use the equity on the car to repay the loan. If there is any cash left after the sale, then you might be given this.

Balloon Payment

If you believe that you will have more money available close to the end of the loan period, you can arrange a balloon payment. Your monthly repayments will be less, and you make the final lump sum payment when it is due. Balloon payments are useful when you have an insurance maturing at the end of the period, or expect to have been able to save up a lump sum to make the final payment.

Debt to Income Ratio (DTI)

This is the ratio of a borrower’s total debt as a percentage of their total income. Some lenders set a maximum DTI above which you cannot borrow any more money – 36% is an average figure. Include all other debts you have, not just your car loan.

Depreciation

The depreciation is the amount by which your vehicle loses value with age, wear and tear. The same term applies to the value of money, and while the value of your car depreciates, the value of your dollar can also depreciate. Fundamentally, the resale value of your car will depreciate every calendar year, most depreciation taking place between being completely new and having been used.

Equal Credit Opportunity Act (ECOA)

This is a federal act by which all creditors must make credit equally available to all buyers irrespective of race, color, religion, national origin, gender or age. However, lenders are not obliged to offer credit if they believe it may not be repaid, so not everybody is entitled to bad credit car loans – or even to car finance of any kind if the lender has valid reasons not to offer it.

Equity

Equity is the difference between the resale value of a property (e.g. your car) and what you still owe on it. So if your car has a resale value of $5,000 and you still owe $3,000 to the lender, your equity is $2,000. This is known as positive equity. Negative equity is as this example but you still owe $5,001!

Gross Monthly Income

Your total monthly income before any deductions. Deductions include tax, child support, insurance, etc. Net monthly income is your income left after such deductions.

Lease

An alternative to buying a vehicle. If you lease a car, you fundamentally rent it, while the owner retains title to it. A lease is generally taken over a much longer period than a rental – many leases run for years.

Loan-To-Value Ratio

Also known as LTV, this ratio is the percentage of difference between a loan amount and a vehicles value. If your car finance is for $5,000 and the value of the car is $10,000, then the LTV is 50%. The loan is 50% of the value of the vehicle.

Monroney Sticker

This is a price sticker required on all new vehicles by federal law. The sticker lists all the options connected with the car together with the manufacturer’s suggested retail price (MRSP.) The MRSP can change if options are different between models or offers.

Payment to Income Ratio

The PTI is a figure stated by a lender that defines the maximum car loan the lender is prepared to offer based on the applicant’s income. This helps to avoid borrowers overextending themselves and being unable to make the monthly repayments. Current averages range from 10% to 15%.

Pink Slip

The Pink Slip is the title for the vehicle, and should be provided to each buyer of that vehicle down the line – just like the title deed for real estate property.

Term

This is the period of the loan from beginning to end, from the time the loan has been granted until it is due to be paid off in full.

Title Loan

Like the Auto Equity Loan, the car is the security for the loan, and the lender keeps the title for the vehicle until the loan has been repaid. This is a common arrangement for bad credit car loans.

Truth-in-Lending

This is a federal law that requires every lender to state the correct annual percentage rate (APR) to borrowers when purchasing a vehicle, whether this is a regular or bad credit car loan.

There are others, although these are the more important of the common terms you will come across when seeking car finance – whether regular car finance or bad credit car loans.

Car Loan Interest Rate – Influences That Affect Your Car Buying Deals

It becomes much easier when you have a clear picture about what you can afford, and what you actually need. One has to always balance the two criterion, and decide upon either of one. Getting your car loan can be quite an ordeal, but if you prepare for your credit facility, the entire process can turn out to be comparatively easy. Redeeming your auto loan can turn out to be a commitment, since vehicle loans offered today can extend from two years to seventy two months i.e. up to six years. it is important to work out your auto loan in cost effective manner i.e. a type of loan which offers affordable rates car loan, a flexible repayment monthly plan which is based upon your monthly earnings, and a vehicle insurance that covers all major indemnities. The best way to get your affordable car loan offering low car loan interest rate is to search for automobile loan providers and lenders who specialize in providing credit facilities to individuals who have bad credit ratings.

Actually, such lenders tend to charge a higher rate of interest from the applicants, so it would not be advisable to avail your loan from such lenders. However, from a practical point of view, if you have fair or good credit ratings, these kinds of loan providers tend to be flexible in terms of interest rates, and often provide quite affordable interest rates. In addition, many auto dealers offer competitive loan rates, and it is recommended you search for car loans online, since almost every loan provider has an official website, and an online presence.

Even if you have bad or poor credit ratings, you can still qualify for your car financing. Some lenders provide low car loan APRs, i.e. a type of auto loan that is based upon a flexible annual percentage rate (APR) rather than a normal or a fixed rate of interest. Such types of car finance loan can be affordable, and easy to redeem. Other option would be search out for banks and credit-lending institutes which offer tailor made car financing  packages for individuals looking out for “auto loans for bad credit” types of loans – loans specially recommended for poor or bad credit borrowers. The cost effectiveness of your loan can be calculated by using a free online car loan payoff calculator. Almost every auto dealer provides loan calculation facilities on his or her web site. You need to work out your monthly installment amount, and how much total interest you’re entitled to pay every year using the calculators.

It is equally important to choose the type of car you need, before you think about your car finance. New brand cars can be quite expensive and difficult to afford for most job goers. And, in majority of the cases, catering to the loan repayment turns out to be the most difficult part. In such cases, it is advisable to go in for second hand or used cars. Many auto dealers provide good quality used cars which are in excellent road worthy conditions, and which are easy to afford since they cost less. Used car loans can cost higher interest rates, however if you find a lender who specializes in used cars and bad credit ratings, it is possible to negotiate and avail attractive car loan rates, and a convenient monthly repayment schedule.

Used Car Loans – Better Than A Personal Loan?

If you have decided it is time to get a new set of wheels, or perhaps your first ever, you are undoubtedly looking into where to turn to obtain the best kind of loan. Most people begin the process by considering getting either personal loans or used car loans for their upcoming purchase. What is the difference, and how do you know which option is right for you? The answers to these questions will be explored here, giving you the information you need to make the best decision.

Before you even have a specific car selected you can apply for your car loan online. Make sure you know the requirements of your loan before you apply. This means that, if you do go ahead and shop around for cars before applying, you need to make sure it will fit within the parameters laid down by the lender. For instance, some car loan companies may require that the car be new enough or have a limited number of miles. There may be restrictions on what kind of vehicle it can be.

Used car loans can only go toward the purchase of your car. On the other hand, personal loans are much more flexible and can be used toward a number of different purchases. The only reason to take out a personal loan instead of a used car loan is if you have another sizable purchase you want to make at the same time without taking out a separate loan. If your only purpose for taking out the loan is to buy a used car, a loan is what you need. While a loan is a loan no matter where you get it from, there are some differences that you should consider if you are still not convinced that your car purchase is best obtained with a used car loan.

Before you even begin receiving used car loan quotes, you should run a credit check on yourself. If this is your first car, you may not have credit built up yet to be approved for a loan. A cosigner will counteract this problem. Ask a parent or other close family member if they would be willing to sign on a loan with you. Be sure you never sign anything, even in a digital format, you do not fully understand. Contact information should be available on websites, so contact the lender with your questions before you sign up.

The biggest difference between one loan and the next is the interest rate. Obviously, the lower the rate, the faster you can pay it off and the less interest you will pay overall. You often have the choice between variable and fixed rates on used car loans. A variable rate may cost you less money if you want to pay off your loan in the shortest amount of time possible. However, if you know it will take you a little longer to pay off your loan, a fixed rate will keep your payments predictable over the entire term length.

The next big difference is secured versus unsecured loans. When you have collateral, such as the car itself, you are participating in a secured loan. These often come with lower interest rates because there is some security. When you take out a personal loan, most often these are unsecured loans, meaning you are likely to pay a higher interest rate for the convenience of not providing collateral. No matter where you take out your used car loans, watch out for hidden fees to avoid any unpleasant surprises.