Car Loan Basics
Such as APR versus interest rate
The five elements covered below are the basic parts of an auto loan. Understanding them and how they relate to each other will help you shop effectively for the best possible car loan rate.
Annual Percentage Rate (APR) The Annual Percentage Rate (APR) is a yearly rate of interest that includes all of the fees and expenses paid to acquire the loan. Federal law requires lenders to disclose the APR. The APR is essentially the ONLY rate you will need to compare one loan (of the same length) with another, because it includes all of the costs associated with acquiring the loan.
Down payment The down payment is the total amount of
money the borrower puts down towards the purchase of a
vehicle at the time of purchase and origination
of the loan. This does NOT include any credits
for trade equity or rebates and incentives.
NOTE: The down payment is credited to
reduce the final sales price of the vehicle
AFTER it has been adjusted to reflect
taxes, trade inequity or other expenses.
Interest Rate Interest is the annual
rate of return that the lender receives
on the principal of the loan. The
interest rate is relevant t to the lender
while the APR is relevant to the borrower.
