Auto Finance Terms You Need To Know

So you have decided to go for auto finance for the car of your dreams. Congratulations! I’m sure you must have done a little bit of research about how to go about it. Here are a few pointers that you should know before you sign on the dotted line for securing the loan from the auto finance company.

Principal balance is the amount you borrow from the auto finance company. This amount is arrived at after adding the sales price of the vehicle, taxes, title, license fees and other charges less the down payment amount required to be paid.

Down payment amount typically varies between 10%-20% of the total cost. The total cost is calculated after adding the sales price, title, license fees and sales tax.

Terms of finance can be confusing, so please pay attention to this segment. It will cover the tenor of the loan, debt covenants, late and pre-payment charges and repossession clauses in the event of a default.

Interest charges or Finance charges will indicate the rate of interest on the loan amount. As a rule of thumb, please remember that the longer the repayment period, the higher this component will be.

Do remember to prepare a cost sheet showing your income and expenses-both fixed and variables. This will help you plan to decide how much you need to pay for down payment, the installment amount and the amount you need to set aside for periodic maintenance charges. This will help you keep expenses under control.


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