Confused About Auto Financing? Check Out Our Guide to Finance Terms

You've found your dream car at one of our McCarthy dealerships, conveniently located throughout the greater Kansas City area. Now it's time to go into the Finance and Insurance ("F&I") Department where you'll finalize your purchase. 

As you sit down with one of our courteous finance professionals, you'll be given a number of documents to look over and sign. There may be some terms and language with which you may not be familiar. So to help you navigate these auto finance waters, we've put together this handy guide which explains some of the many important terms used in the auto financing process.

Annual Percentage Rate.  Abbreviated as "APR," the annual percentage rate is similar to an interest rate, but with some important differences. It's actually the interest rate times the number of periods in the year. For example: If an interest rate is figured quarterly at four percent, the APR would be 16 percent (4 X 4 = 16). The APR allows you to compare different loan options because it states the loan in a standardized yearly figure. 

Balance: When you purchase a car you will have agreed to pay a specific price for it. If you provide a trade-in or a down payment, what remains is the balance you owe on the loan. Every time you make a monthly payment, you reduce the balance amount until the loan is paid off.

Credit: Basically, this means that you are borrowing money from a financial or lending institution. Your ability to borrow money at a lower interest rate is based on your "FICO score," which is calculated by your credit rating as it is reported by the three major American credit bureaus: Equifax, Experian, and TransUnion. The score is a range roughly from 500 to 850. The higher your score, the better your credit-worthiness. A score of 660 to 699 is considered average.

DMV Fees: Your local Department of Motor Vehicles requires you to register your car, as well as provide proof of insurance. The registration fee is usually based on the make, model, year, and mileage of the vehicle. These are also called title and license fees. You may be given a temporary permit to drive the vehicle off the lot, which gives you enough time to get your car registered. Contact your local DMV office for specific legal requirements.

Down Payment: When you purchase your car and finance it through one of our McCarthy Auto Group dealerships, you may decide to lower the amount financed by giving the dealership some cash up front to lower the amount financed. This is called the down payment. For example, if you are buying a $30,000 car, and putting down $5,000, the loan will be for $25,000. The more money you put down, the less money you will owe, which can lower your monthly payment.

Finance: This simply means that you are borrowing money to buy the car instead of paying cash for it, in which case you immediately own it outright. The bank or lending institution retains ownership of the vehicle until the loan is paid in full.

Interest Rate: Banks charge you a fee to use their money when you borrow it from them. This fee, the interest rate, is often a percentage of the total amount of the loan. It means that you will be paying the agreed-upon sales price of the car plus the interest which, when added to the sales price is what you will actually be paying for the car during the term of the loan
Lease: Think of leasing as "renting." When you rent something, you don't own it. Just like renting a house, the vehicle remains the property of the dealership. You pay a monthly fee to use the car for a certain period of time. Usually you can only drive the car for a specific number of miles per year. If you go over that mileage cap, you will be assessed additional fees. At the end of the lease, you can return the car to the dealership and walk away from it, or negotiate a plan to purchase the vehicle based on its residual value (the amount you did not pay during your lease).

Lending Institution: Banks aren't the only places that loan money. Any company that loans money is called a "lending institution." It can be a credit union or even the auto manufacturer. Dealerships usually work with a number of different lending institutions when arranging auto loans.

Sales Tax: The state or local municipality in which you live charges taxes based on a percentage of the purchase amount. These percentages vary from state to state, and even in different areas within a state. The sales tax is calculated into the finance agreement between you and the dealership, as the dealership is required by law to collect the tax and pass it on to the government at the time of the sale.

Term: This is the length of time you are given to pay off your auto loan. Typical car loans and leases are 36, 48 or 60 months, but sometimes can be for longer time periods.

Title: A title is a legal document that describes who owns the car. If you pay cash, the title will be made out in your name proving that you own it. If you finance your car, the bank or lending institution will be listed on the title as the owner. When you pay off the loan, the title is transferred to your name.

We Take the Hassle out of Buying a New Car
At the McCarthy Auto Group, we pride ourselves on giving you the type of outstanding customer service you deserve and expect. Be sure and stop by one of our auto dealerships in the Kansas City area. When it comes to buying or leasing a new Chevy, Hyundai, Nissan, or Toyota, we make the process easy. Click here for locations and directions.


Categories: Finance
McCarthy Chevrolet
675 North Rawhide Drive Olathe, Kansas 66061
Phone: (877) 460-5408 URL of Map
McCarthy / Morse Chevrolet
9201 Metcalf Avenue Overland Park, Kansas 66212
Phone: (877) 461-6593 URL of Map
McCarthy Chevrolet Lee's Summit
945 SE Oldham Parkway Lee's Summit, Missouri 64081
Phone: (888) 769-1821 URL of Map
McCarthy Olathe Hyundai
681 N. Rawhide Olathe, Kansas 66061
Phone: (877) 465-0829 URL of Map
McCarthy Blue Springs Hyundai
3000 NW South Outer Road Blue Springs, Missouri 64015
Phone: (877) 584-1401 URL of Map
McCarthy Nissan
683 N Rawhide Road Olathe, Kansas 66061
Phone: (877) 517-7514 URL of Map
McCarthy Toyota of Sedalia
3110 West Broadway Boulevard Sedalia, Missouri 65301
Phone: (888) 693-4664 URL of Map
McCarthy Pre-Owned Supercenter
3030 NW South Outer Road Blue Springs, MO 64015
Phone: (816) 256-2362 URL of Map
McCarthy Chevrolet Buick GMC
1550 W Arrow St Marshall, MO 65340
Phone: (660) 530-4625 URL of Map