Common Finance Terms

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The realm of buying or leasing a vehicle can be a daunting one, especially if you aren't familiar with the lingo used by financial institutions and dealerships during the process of purchasing or leasing a new ride. Here are a few basics you should know before you get into it; after all, you're throwing around a lot of money, and you need to have a basic understanding of what you're in for.

Credit: Also referred to as your credit history, your credit is an immensely important aspect of the buying process, especially if you are taking out a loan. Basically, your credit is a number that communicates to the dealership and financial institutions such as banks whether or not you are reliable and conscientious with your money, and whether or not you are capable of paying back a loan on time.

Depreciation: A natural aspect of any new car's life, depreciation is the loss of value as your vehicle ages. A three-year-old vehicle is significantly less expensive than a brand-new one. Depreciation figures significantly into the process of leasing a car, as dealers will use projected depreciation values to calculate how much you'll owe over the course of the lease.

Destination Charge: An additional cost tacked onto the overall sticker price that covers the cost of the manufacturer delivering the car to the dealership.

Down Payment: An amount of money paid upfront for a vehicle. The higher the down payment, the less you will owe the institution that lends you money to cover the rest of the cost, and the lower the monthly loan payments.

Interest: Usually calculated as a percentage, this is a finance charge accumulated over time as you pay back a loan. The longer you take to pay, the more you will pay over time. This is how financial institutions make money off of loans.

Lease: Essentially the equivalent of renting a new vehicle for long-term use, leasing a car has advantages over buying one because you won't pay the full cost of the vehicle, but rather cover the costs of depreciation during the term of your contract. However, you will eventually have to return the vehicle to the dealership.

MSRP: This abbreviation stands for "Manufacturer's Suggested Retail Price," and applies to the advertised cost of vehicles on the brand's website. This may or may not be the same price the dealership charges, as it is only a guideline; the amount you pay could end up being higher or lower.