Finance Terms Explained in North Charleston, SC

When it comes to understanding everything about a finance contract, we get that it can be a little overwhelming. From having to pull together documents to reading all that fine print, there's a lot to understand and read through before signing your name on a contract. But we here at Hyundai of North Charleston want to help. We've put together a list of some of the most common finance terms you're bound to come across, and we want you to feel more confident when signing a finance contract. Keep reading to find out more!

Most Common Finance Terms

Finance

Financing simply means you're borrowing money from one of our lenders (or a bank of your choice) so you can purchase your desired vehicle. The lender purchases the vehicle for you, and then you repay the loan over an agreed term and interest rate. When financing, the lender gives you the service of borrowing its money, while you pay them back with interest.

Leasing

Essentially, leasing is when you're renting a car for an extended period of time. It's a great way to try out new cars that are still under warranty, but you'll return the vehicle at the end of the term. You'll pay a down payment, generally 20% of the vehicle's value, followed by monthly payments. The typical term runs anywhere from 24 to 36 months, although it can last for up to 60 months. Once your term is up, you can either return the car or have the option to purchase it.

Term

Simply put, the term is the set amount of time for a loan or a lease. For example, the term on a 36-month loan is 36 months, or three years. Shorter terms generally mean higher payments but lower interest rates. When agreeing to a loan, ensure that the loan term matches your budget.

Principal

The principal refers to the initial size of the loan, which is that big number you want to chip away at. For example, if you finance a car that costs $18,000 but put down $2,000 for your down payment, your principal you'll have to repay would be $16,000.

Money Down

The more you can put down, the better. Money down is how much money you place up front on a loan, sometimes also called a down payment. The more you can put down up front, the lower your monthly payments will be. Say you purchase a vehicle for $20,000, but you pay $5,000; you'd only have $15,000 left to repay. Money down isn't charged interest, and dealerships usually like a large down payment to secure a desirable interest rate.

Interest Rate

When taking out a loan, you're typically charged interest. This is the fee added onto your monthly payments. It protects lenders from risky customers who might not repay the loan. It's sometimes also referred to as the APR, or annual percentage rate. APR is determined by several factors, including your credit score, the term length and the age of the vehicle being financed.

Cash Back

Cash back is a great deal. It's an incentive from the manufacturer to encourage you to buy a car. It can shave off thousands of dollars on your vehicle purchase price. The dealer can also write a check for the amount advertised. Usually, you can use the cash back as the down payment and reduce the selling price, or you can walk away with a check in hand.

Rebate

You've probably heard this term before. A rebate is an incentive that's usually applied to a vehicle's selling price, but only after purchase. Once all the paperwork has been finished, the dealer will write a check for the rebate amount or provide you with cash on hand. Cash back is instant, but you may have to wait on a rebate to arrive.

Trade-In

When you trade in a vehicle, you're essentially offering your old vehicle to the dealership for credit towards the new vehicle that you want to buy. By doing so, you can take thousands of dollars off the asking price.

Depreciation

This is when a car loses value. It happens every year until the value is zero, and it happens to every vehicle, regardless of its condition. A brand new car loses around 10-20% of its value just by driving it off the lot. In five years, that new vehicle will lose 60% of its original value, no matter how clean and pristine you've kept it.

Equity

Equity is the difference between how much your car is worth and what you still owe on it. Say the value of your car is $15,000, but you still owe $6,000 to the lender; you have $9,000 in equity. It's essential to keep this ratio balanced and not accrue negative equity; this means you owe more on the loan than what the car is worth.

Upside Down

This is what we refer to as negative equity, as previously mentioned. Owing more on the vehicle than what it's worth makes it difficult to sell, and negative equity can follow you into a new loan. If you finance with us here at Hyundai of North Charleston, we'll try to help keep you from making this error.

If you have further questions or would like to know more, give us a call or visit us at 8485 Rivers Ave, North Charleston, SC 29406. We look forward to serving our customers from Goose Creek, Mount Pleasant and Summerville.