Terms of Finance – What It All Means

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BY JELANI DANIEL 

The auto financing process can sometimes be overwhelming for first time buyers or those looking to lease. You can use this article as a reference point if you are considering either leasing or financing in the future.

Automobile Financing: Automobile financing itself is a part of the personal financing field, giving clients a series of different options that are available to help the purchaser buy a vehicle they desire without a large initial deposit. Financing can include car leasing (Personal Contract Purchase) as well as car loans that can go towards purchasing a vehicle.

APR: An Annual Percentage Rate is an interest rate that takes a series of financial factors into consideration. Some considerations may include job stability, lifestyle costs and potential job loss. The rate is fixed and will not increase over time, serving as a valuable tool for budgeting in the long run.

Brokerage: A brokerage consists of brokers, and brokers link the buyer with the seller. Typically, the automobile broker issues their services to help clients get the car they want at a price that they can afford. The process is tailored and many considerations are made including the buyer or leasers present income, what type of car they would like and what interest rates they can afford and for how long. Loans and financing options are available to clients, as well as in-house financing and poor credit options, making brokerages suitable for all income levels.

Dealership: A dealership sells new and used vehicles that are offered at standardized costs. As well, they offer financing options as well as leases, much like a brokerage. They may be less forgiving for poor credit but do offer a series of different options for different incomes.

Long Term Financing: A long-term loan has a fixed interest rate and can be applied to both dealership and third party loans. The term of the loan may be just under five years, but can extend to twenty five years or up. The interest rate may be higher or lower than that of a short term loan.

Short Term Financing: The term of the loan may be shorter than two years with a higher or lower interest rate than that of a long-term loan. Short term financing may have promissory-based arrangements (signing a contractual agreement) in order to ensure the loan is paid off quickly.  Both short term and long term financing options look at lifestyle costs and projected incomes.

There are many other terms to consider, but the above are the most common and can help you get a better grasp on financing.

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