Breaking Down Auto Loan Terms: What to Know Before Signing

Buying a new or used car is exciting, but understanding auto loan terms is crucial. Key terms include interest rate, loan term, down payment, fees, insurance requirements, and warranties. Knowing these can help you make informed decisions and secure the best financing for your vehicle.

At Voyage, we want to give you the knowledge to make smart decisions and get the best financing for your dream car. Let's break down the key auto loan terms you should know.

Interest Rate: The Cost of Borrowing

The interest rate is the price you pay for borrowing money to buy your car. It's expressed as a percentage of the loan amount and can affect your monthly payments and the overall cost of your loan. Factors like your credit score, loan term, and the type of vehicle you're buying influence your interest rate. Read more on other factors that would affect your interest rate and ability to qualify for an auto loan. At Voyage, we offer competitive interest rates to help you save money and reach your financial goals. Find the best available rates here.

Loan Term: How Long You'll Be Repaying

The loan term is the length of time you have to repay your auto loan. Common terms range from 36 to 72 months, but other terms may be available.

A longer term usually means lower monthly payments but more interest over the life of the loan. A shorter term means higher monthly payments but less interest overall. Voyage offers flexible loan terms to suit your budget and financial needs.

Down Payment: Your Initial Investment

A down payment is the upfront amount you pay towards the car's purchase price. A larger down payment reduces the loan amount, leading to lower monthly payments and less interest paid. It can also help you qualify for a lower interest rate.

If you're unsure how much to put down, our team can guide you and help you determine an appropriate amount based on your financial situation. You can also use our loan payment calculator to see what your monthly payments might be.

Fees and Charges: Hidden Costs to Watch Out For

In addition to the interest rate, it’s important to understand the fees and charges involved. At Voyage, we strive to provide transparent and affordable loan options. Our loan options are designed with minimal fees, and we ensure you are fully informed about any costs associated with your loan. Our team will clearly explain any applicable charges so you know exactly what to expect.

Insurance Requirements: Protecting Your Investment

Lenders usually require borrowers to have full coverage auto insurance to protect their investment in the vehicle. This insurance covers damage to your car in accidents and may include liability coverage, collision coverage, and comprehensive coverage. Our team can help you explore insurance options and connect you with trusted providers to ensure you have the necessary coverage.

Listen to this Tips for Change podcast about other ways to protect your investment.

Warranties: Peace of Mind for Your Purchase

When buying a new or used car, consider any warranties offered by the manufacturer or dealer. A warranty can cover repairs and replacements for specific parts or systems, providing peace of mind and potentially saving you money on unexpected expenses. If you're unsure about warranties or have questions, our team can offer guidance and help you understand the coverage available for your chosen vehicle.

Annual Percentage Rate (APR): Total Loan Cost

The APR includes the interest rate plus any additional fees or costs associated with the loan, providing a comprehensive view of the loan’s total cost. Comparing APRs between different lenders can help you find the most affordable option.

Principal: The Amount You Borrow

The principal is the amount of money you borrow to purchase your car. This does not include interest or fees. Each monthly payment reduces the principal, with part of each payment going toward interest and part going toward the loan balance.

Prepayment Penalties: Fees for Early Repayment

Some lenders charge prepayment penalties if you pay off your loan early. This fee helps lenders recoup some of the interest they would lose if you repay your loan ahead of schedule. Always check for prepayment penalties in your loan agreement.

Manufacturer's Suggested Retail Price (MSRP): Starting Point for Negotiation

The MSRP is the price that the car’s manufacturer recommends dealers charge for the vehicle. It's often used as a starting point for negotiation. Buyers typically negotiate a price lower than the MSRP.

Total Cost: What You'll Pay Over the Loan's Life

The total cost includes the principal, interest, fees, and any additional charges associated with the loan. Knowing the total cost helps you understand the full financial commitment of your auto loan. 

Take the Wheel with Voyage Federal Credit Union

At Voyage, we're committed to making your car-buying journey as smooth as possible. Understanding how auto loans with credit unions works is part of that process. Our knowledgeable loan specialists are ready to answer your questions, explain the terms, and help you secure a loan that aligns with your financial goals. Contact us today to explore your options and get behind the wheel of your dream car with confidence.