Common Vehicle Finance Terms


If you're going to finance a new car, you should probably get acquainted with some of the words you're bound to come across in the process. This will give you a leg up and help you feel more confident in your purchase. Here are a few of the most common finance terms you'll probably run into.


Annual Percentage Rate (APR) - This is the rate charged for borrowing a loan. If you take out a loan to buy or lease a car, that loan will need to be paid back over a set period of time, with interest. APR represents that interest over a year.

Co-signer - If your credit isn't strong enough on its own, a lending institution may require a co-signer. This is someone who assumes equal responsibility for a loan.

Credit Score - This is a number that represents your credit history. Lenders use this number to assess how risky it is for them to give you a loan. The higher your credit score, the better, but we'll always work with you at Tower Ford to get you the best possible deals regardless of your score.

Dealership Financing - This is when the dealership secures the financing for you. This can be through a bank, credit union, or vehicle manufacturer.

Down Payment - This is the amount of money you'll pay up front when buying or leasing a car on credit. It can be any amount as long as you can afford it out-of-pocket. The advantage of doing this is that it'll reduce what you'll have to pay each month after that, and interest won't apply to it.

Guaranteed Auto Protection (GAP) - This optional insurance will pay the difference if your vehicle is totaled and the amount owed on the loan exceeds the amount the insurance company will pay for the car.

Negotiated Price of the Vehicle - This is the final price of the vehicle as agreed between the buyer and the seller, after special offers and discounts have been taking into account, like rebates, trade-ins, and more.

Lease - With a lease contract, you will pay a monthly fee to drive the car. At the end of the contract term, you will return the car.

Lending Institution - A company that loans money. This includes banks, credit unions, and even car manufacturers.

Sales Tax - The amount of tax charged as a percentage of a purchase. The amount can vary from state to state and even city to city. For a vehicle purchase, this can be a significant charge.

Term - This is the length of a loan or lease, usually expressed in months.

Title - A legal document that shows ownership of a vehicle. If you owe money on a car, the title will be held by the lending institution.

Trade-In - If you have an older vehicle you'd like to get rid of, you can trade it in at the dealership as part of your purchase. We'll ask the value of the vehicle you are trading it and offer you an amount that can go directly toward your down payment.

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