Why are financial terms important? Have you ever signed a contract and did not read the contract fully before you signed it? Here is another scenario, have you ever read over a financial contract and did not know what the words meant?
Financial terms can be confusing, especially if you do not know what the words mean. Financial lingo appear in important documents dealing with a dealership, bank, finance company or credit union. Knowing the language of finance is critical. Below we have fleshed out terms to look for, when reading over financial documents.
These terms come from the Federal Trade Commission
Amount financed– the total amount of the loan omitting the lender fees (this is used to calculate the Annual Percentage Rate or APR)
APR(Annual Percentage Rate)– the cost of credit expressed as a yearly rate. You may be able to negotiate this figure. Factors that influence your APR: Your credit history, current finance rates, dealers compensation, competition, market conditions, and special offers are among the factors that affect your APR. Try to negotiate the lowest APR just as you negotiate the price of your vehicle.
Credit Score-A number that reflects the credit risk you present based on information in your credit file. The better your history of credit, the higher your score may be used to help decide the rate and other terms you are offered.
Down Payment-The initial amount you pay to reduce the amount you finance
Finance Charge– The cost of credit expressed as a dollar amount. You may be able to negotiate this figure.
Fixed Rate Financing-financing where the finance rate stays the same over the life of the contract
Guaranteed Auto Protection (GAP)- Optional protection that pays the difference between the amount you owe on your vehicle and the amount you would get from your insurance company if the vehicle is stolen or destroyed before you have paid off your credit obligation
Repossession-if you do not make timely payments on a vehicle, your creditor may have the right to repossess it without going to court or warning you
Total of Payments-as disclosed on a loan or finance contract, the total amount you will have paid after you have made all the payments as scheduled. For a lease, this is the amount you will have paid by the end of the lease.
Verbal Rate Financing-Financing where the finance rate varies and the amount you must pay changes over the life of the contract. This is not typical in vehicle finance transactions
Wholesale Rate (Buy Rate) -The finance rate at which an assignee buys a retail installment sale contract from the dealer.
These are just a few terms. More terms that can be found on the Federal Trade Commission
Remember to read over everything before you sign anything! Just knowing the terms will help understand what you are officially signing. If you are still not sure about any financial term or if you are confused about the whole process, contact us at Louisiana Approval. We would love to help you, you can reach us here.