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How to Understand Loan Terms for Car Shoppers

last updated April 3, 2014 by

How to Understand Loan Terms for Car ShoppersMany people probably don’t know all the jargon in the bad credit auto loans world. Knowing these terms is crucial to speeding up the lending process and making your auto lending experience an easier one. Without further ado, here’s some of the terms you might hear bandied about.

Annual Percentage Rate (APR)

This is the interest rate that you pay for your credit. For instance, if you have $10,000 in outstanding debt on your car, an APR of 10% would mean $1000 in interest spread out over your loan payments. For bad credit auto loans, this is typically fairly high- as high as 20% in some cases.


This is a calculation of the principal (the money you owe) and the interest (the money that you pay for the ability to get the loan), calculated over the course of the entire loan.


This is the business that purchases your loan from the dealership. It doesn’t change your loan obligations in any way, but it does change where you send your bills to.


Similar to co-signer, this is a person who is willing to assume responsibility for paying the loan in the event that you can’t pay it off. This reduces your interest rate.

Outside Lender

This is the term for car buyers who already have their lending needs taken care of before they ever enter the lot. Usually, this means a lower interest rate for the buyer, but not always.

On Site Financing

Basically the reverse of the above, this is when people go through the dealership for their lending needs. This typically means a higher interest rate. Here’s a little help on how to negotiate with car salesmen once you enter the lot.

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