finance terms explained

Financing with any dealership can be daunting, even if you have exceptional credit. Some can get lost in the terms of the contract, while others anxiously google every other word to understand what they're signing. With all the documents required and questions directed toward you, there's enough to wade through without knowing off hand the exact definition of each and every finance term. That's why we've listed all the finance terms plus explanations you'll come across in one convenient place so you feel more confident negotiating the terms of your lease or that pesky interest rate. Let's get you in that new Genesis ASAP.

Finance

Finance

Financing is simply taking out a loan. Whether it's through one of our lenders or a bank of your choice, the lender will purchase the vehicle for you under the agreement that you'll repay the lender over a period of time with an interest rate. Financing builds your credit while allowing you the luxury of using the vehicle with the promise of eventual ownership.

Leasing

Leasing

Leasing, or extended renting, has the flexibility without the commitment. You'll pay a down payment followed by monthly payments until the end of the lease term, similar to purchasing. After the lease expires, you'll return the vehicle to the dealership, or you have the option to buy the vehicle outright. The perk of leasing is that you'll enjoy all the fancy features of newer models while still under warranty, and you'll get to return the vehicle and try another one without much hassle.

Term

Term

A loan term is the period of time agreed to repay the loan. Ranging from 36 months to 60, the term determines your monthly payments, so ensuring the term matches your budget is critical.

Principal

Principal

The principal is the initial value that you want to pay off. If you finance an SUV that costs $36,000 and place $3,500 as the down payment, you'll have $32,500 as the principal left to repay. Interest is always charged to the principal.

Money Down

Money Down

The more upfront, the better for everyone. Also known as the down payment, money down is the initial amount placed on the loan as collateral. For example, if you purchase a car listed at $45,000 and place $6,000 as a down payment, that $6K won't be charged interest and it knocks down the principal to $39,000. A large down payment will give the lender more confidence of repayment, so it'll shrink interest rates for the rest of the loan, too.

Interest Rate

Interest Rate

When you borrow money, the lender will apply an interest rate to the principal as protection against risky lenders who might not be able to repay the loan. It shows as a monthly fee in the payment schedule. Also known as APR, or annual percentage rate, the interest rate is determined by your credit score and history, the age of the vehicle being financed, the loan term and other relevant factors.

Cash Back

Cash Back

Who doesn't love cash back? An incentive that can reduce hundreds of dollars off the selling price, dealers (or manufacturers) will offer cash back to encourage customers to purchase or lease their vehicles. The dealer can also write a check for the amount advertised instead. For example, a dealer may ask for $55,000 for a specific vehicle and offers $2,000 cash back. If you choose this vehicle, you can use the $2,000 as a down payment and reduce the original price down to $53,000, or drive home with a $2,000 check but a full-priced car.

Rebate

Rebate

Similar to cash back, a rebate is another incentive dealers offer but only after the purchase of the selected vehicle. After handing you the keys to your new car, the dealer will either write a check or give you cash for the amount advertised. Rebates are different from cash back incentives in that they take more time to arrive and most likely won't be applied to the original selling price.

Trade-In

Trade-In

In a trade-in, you trade your old vehicle to the dealership for either cash or credit toward the new or used vehicle they have on their lot. Depending on the value of your car, it could shave up to thousands of dollars off the selling price.

Depreciation

Depreciation

Depreciation is a term that describes the decline in value in a car. Not dependent on the condition of the car, depreciation affects all cars year after year until the value is zero. A new vehicle will lose about 10-20% of its original value when you drive off the dealer's lot. In five years, that shiny new Genesis priced at $44,000 will decrease by 60% of the original price tag, or $26,400 total lost.

Equity

Equity

Equity subtracts the total due on a loan from what the car is currently worth. For example, if the value of your vehicle in 2020 is $13,000 but the principal still amounts to $8,000, you have $5,000 in equity. Stay ahead of depreciation; it's important to keep this ratio balanced.

Upside Down

Upside Down

There's such a thing as negative equity, or an upside down car. It can be problematic to owe more than what the car is worth since it makes it difficult to sell. But here at Genesis of Kennesaw, our experts try to inform you against making financial decisions that will lead to an imbalanced ratio.

If you're ready to start the financial process of owning or leasing your favorite model, contact us today or stop by Genesis of Kennesaw at 2878 Barrett Lakes Blvd Nw, Kennesaw, GA 30144. We look forward to serving our customers near Marietta, Acworth and the greater Atlanta area.