Auto Loans

Knowing the APRs of Car Buying

Do you know about APRs? How about Four Square worksheets? Whether motorists are buying a car with a credit card or getting a loan or even paying cash, these are terms that are commonly used and that should be understood.

And defining and understanding these terms will help anyone traveling the sometimes rock-strewn road of car buying, however payments are made.

Some of these terms are obvious. Motorists when buying a car get a title: that is simply the legal document giving an understanding about who owns the car. Very simple. But the title will be held by a bank or dealer if the car is financed by them. When buying by credit card, the title is not so obvious.

The down payment, for another example, is the amount credited against the balance of payment. The important element to know about this item is that the more money put down, the lower the future payments generally.

APR’s are less obviously understood but make a vital difference to credit cards and any other means of car payments. That is the Annual Percentage Rate or interest rate times the number of periods in the year. Say the interest rate is 4%. That means the APR is 16%. Easy to figure out. The APR should make it easy to compare rates, but buyers should keep in mind there may be hidden fees.

As for the Four Square Worksheet, it’s a standard from at many dealerships. What it does is help the sales people keep track of the various elements of a deal during negotiations. It’s really not critical to the ongoing deal but it can also help buyers better understand the deal.

DMV is another sometimes confusing term that crops up. These are title and license fees and are a percentage of the purchase price of a vehicle. Again, they can add costs that the buyer should be aware of.

Other terms to know about:

Term. That’s the length of a loan, if there is one, usually given in months. Commonly, these last anywhere from 36 to 60 months.

Sales tax. Something that should not be forgotten. These vary from one state to the next but there can also be local taxes, which are combined for one total. These should not be ignored because they can affect the entire cost of ownership.

Leasing. “Buyers” of leases don’t make the purchase. They are leasing it for a certain amount of time over a certain period. It means the vehicle must be returned at the end of the lease, though many would-be buyers use the usual option of buying when the lease expires.

Finance. This means borrowed money. It means a loan, wherever given. The better alternative is to pay for the car outright, with cash. Everyone knows that term, cash (even if they can’t afford it).

These insider terms should not be ignored. Just as buyers shop around to consider what they are buying such as the model car and its amenities, it helps to also find out the terms or just how they are buying it. 

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