Common Financing Terminology
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An important step of purchasing or leasing a new Volkswagen at Joseph Volkswagen of Cincinnati is signing on the dotted line. While our finance team will work hard to make the process simple and stress-free for you, you may hear some words or phrases you’re not familiar with. Because we want you to feel comfortable doing business with us, here’s some definitions of vehicle financing vocabulary that you should know.
APR
The annual percentage rate is the total amount of interest and fees you’ll pay on a car loan. This is often confused for the interest rate alone because they’re both expressed as percentages. APR is calculated based on the amount that you borrow, so it gives you a firm idea of how much you can expect to pay over the life of the loan.
Bill of sale
When you’re getting ready to sign for your vehicle, the bill of sale is a document that we’ll prepare to record the details of the transaction. This is basically a very official receipt.
Blue Book/Black Book
Blue Book is the informal way of referring to Kelley Blue Book, which is the industry standard for vehicle valuation. If you’re receiving Blue Book value on your trade-in credit or below Blue Book value on your vehicle purchase, you’re doing better than the average shopper.
Certificate of title
When you purchase your vehicle, you’ll receive a certificate of title from the Department of Motor Vehicles. This proves your ownership of a vehicle, which is essential for legal purposes. The car has to be registered in your name as the official owner.
Closing costs
Closing costs aren’t just for houses. When you finance a vehicle, closing costs of your loan include state sales tax, DMV fees, and any other potential fees or charges.
Cosigner
If you have less-than-ideal credit, you may need a cosigner. This is a person with a good credit history who assumes shared responsibility for repayment of the loan. Usually a trusted family member or friend, your cosigner will be responsible for payments if you are unable to meet your obligations. Cosigners can help you earn a better interest rate on a loan.
Credit
Lenders look at your credit history to determine if you are trustworthy to repay the money you’re borrowing through a loan. The more trustworthy you are, the more likely you’ll get approved and the better interest rate you’ll receive. A lack of credit history or tendency to miss payments can make you an untrustworthy borrower.
Depreciation
Your car will become less valuable as it gets older and has more miles on the odometer. This is called depreciation. You need to be careful that your car doesn’t depreciate faster than you pay off your car loan or else you’ll be “upside down” or “underwater” (owing more than it’s worth).
Down Payment
You can pay some money for your car now from your bank account and then cover the rest that you owe with a loan. This initial amount of money is the down payment. It lowers the amount of the purchase price that you’re financing. Typically, it’s up to you how much money you put as a down payment when you buy a car.
Gap Insurance
What happens when you owe more on your car than its worth and it gets stolen or wrecked? You’ll have to pay a lot of money for a product that you don’t have anymore. Gap insurance will pay for the difference between what you owe and what your insurance claim paid out.
Loan length or duration
The length of your car loan is counted by the number of months. Most car loans are 48 months (4 years) or 60 months (5 years). The longer the duration is, the less you’ll pay every month. However, you’ll pay more in the long run because of that extra time.
Principal
The principal of your auto loan is the amount borrowed, plain and simple. This doesn’t include monthly interest accrued.
You have questions, and we have answers. Joseph Volkswagen of Cincinnati wants you to have a most pleasant car-buying experience in the Queen City, so we’re happy to help you in any way we can.