An auto loan is essentially a binding agreement between a lender and a borrower who uses the lender’s funds to get a car. The advantage to getting an auto loan is that you don’t have to wait until you save up the entire purchase price of the car to begin driving it. On the flip side, the loan will imply interest charges, which will result in you actually paying more than the purchase price over the life of the loan.

Beyond this simple explanation there are a number of terms and auto loans jargon that you should be aware of so that you are at least armed with the basics of understanding auto loans and how they work.

Loan Amortization

Loan amortization is the reduction of the auto loan debt as regular payments are made towards the principal and interests over a certain period of time. It refers to the repayment of the loan and the consequent continuous reduction of the outstanding debt associated with the loan.

Annual Percentage Rate

The APR is a way of expressing the overall cost of obtaining credit for an auto loan. All consumer loans, including auto loans, must disclose the Annual Percentage Rate as per Federal law. This rate includes not only the interest rate charged for the money lent but also any costs and fees associated with the lending process. When it comes to loan comparison, there is no better tool than the APR to decide which loan is cheaper.

Loan Application

Loan Application is rather simple: You must complete an auto loan application before a lender can determine how much they will be willing to lend you for your auto loan. It will collect your personal and financial information so that they can assess your ability to pay. Details you will have to disclose are: Your Income, your personal information (name, surname, date of birth, etc.), assets, etc.

Balloon Loan

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