When you are looking for an auto loan you may come across a few terms which you simply do not understand. So just what do these terms mean and how can you make sense of them in order to understand what is being offered to you?

The Various Auto Loan Terms Explained

There are a number of different auto loan terms which you may have to learn including:

• Down Payment
• Annual Percentage Rate
• Dealer Hold Back
• Base Rate
• Upside-Down

The above are just a few of the most common auto loan terms and when you find out what they actually mean, you will realize that they are not really overly complicated.

Down payment for example is a term used basically to describe a deposit. Many loan companies may ask you to put a down payment of at least 20% on the car before you are given an auto loan. You can usually pay as much of a down payment as you like, just as long as you pay the minimum 20%.

Annual Percentage Rate is the thing which most people have confusion with. It is often more commonly shortened to APR and it describes the total amount which is financed and the various finance charges involved which you pay over the auto loan period. It is usually different to interest rate which is something that many people do not understand.

A dealer hold back is a term used to describe what happens when the dealer of the car purchases a car which is less than its invoice value and an allowance is given to the dealer from the manufacturer. A base rate is basically the simple cost of a car without any add-ons. You may also hear the term ‘sticker rate’ for this too.

Finally upside-down is a term which people use to describe an auto loan which is costing more than the value of the actual car. This occurs when the interest rates are high and you end up paying back double what you borrowed. In order to avoid this it is always a good idea to shop around to find the best rates.

Overall those are the most common auto loan terms and as you can see, they are not really that complicated to learn either. It can be important to learn any auto loan terms before you take one out because otherwise you may not have a clue what you are letting yourself in for.