If you are thinking about taking a car loan, you should learn the most important terms in the process. 

This is some information about such car loans and some of the most commonly used terms in them.

Understanding Car loans

Car loans are a bit complex, and there are several types that you can receive. Therefore, you need to understand the various terms used in the auto loan world. 

We’re going to provide you with a list of some common terms.

Five Auto Loan Terms You Should Know

Auto Loan

These are five of the most commonly used words in the auto loan world. Learn these so that you will better be educated when it comes time for you to deal with an auto lender.

Maturity Date

The maturity date is a popular term that you will see when you read materials about your loan. The maturity date is the date at which your loan becomes fully paid. 

This may be expressed in terms of months, and the lender may also express it with an exact date for you. By learning your maturity date, you can have a good idea of when you can expect to finish making your payments.

Interest Rate

Car Interest Rate

The interest rate is a rate that the lender charges you for allowing you to borrow money. According to Lantern Credit, interest rates can vary, depending on the lender and your credit score. 

The higher your credit score is, the lower the interest rate will be on the money you borrow. A person with perfect credit may have a low rate of 12 percent, while someone with a poor credit score might have a 29 percent interest rate. 

It’s crucial to find out your interest rate before you sign an agreement for a car loan.


The principal is the amount of money you owe on the loan. It’s separate from the interest rate. Your loan payment usually goes toward the loan and the interest. 

That’s why it’s important to know the interest rate and the principal balance so that you can see how much longer you have to pay for your vehicle.



Amortization is a process that allows more of your monthly payments to go toward the principal balance over time. For example, the lender might only apply $100 of a $300 car payment in the beginning. 

You will see that amount increase after you’ve paid on the vehicle for quite some time. You can learn more about car loan amortization from Lantern by SoFi by contacting the institution.


The title is a document that states who owns the car. Your title will have a lienholder on it as long as your loan remains open. Once you pay your loan, the lender will remove the lien, and you will be the sole owner of the vehicle.

Now you know a little information about car loans and some of the most popular terms used in the car loan world. You can now feel confident communicating with a lender about your needs.