Auto Financing Glossary

Credit Score

Also called a credit rating, this number tells banks and other lenders how risky it is to let you borrow money. The score can be anywhere from 300 to 850, and it's determined by criteria like whether you pay your bills on time and how much debt you have.

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Down Payment

This is the initial amount of money that you put toward your new car. It should usually be 10 to 20 percent of the asking price. The larger your down payment, the less you need to spend on monthly payments and interest.

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Financing

Financing lets you get a loan and pay for your car over time instead of paying the entire amount up-front in cash.

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Interest/APR

Interest is a fee from a lender for giving you a loan. The APR refers to an “annual percentage rate,” which is the total interest and related costs for a single year of loan payments.

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Loan Term

This usually means the length of time you have to repay a loan, though in some cases it also refers to rates and other information about your loan.

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MSRP

The Manufacturer's Suggested Retail Price is how much the vehicle maker recommends selling its car for. The MSRP is helpful for comparing cars, but it's not necessarily what each dealership will be charging.

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Principal

The loan principal is how much money you're borrowing, excluding the interest.

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Title

This is a document that proves you own a car legally. You'll need the title to your old car if you decide to trade it in.

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