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. 

When you make a car purchase, most of the time you’re going to take out a loan for it. If you plan on purchasing a brand new vehicle, then you’ve probably spent a lot of time looking at your different options, but do you really know how car loans work?

When you take out a loan for a car from a financial institution, you will get the money in a lump sum and then you will be expected to pay it back, plus the interest, over a certain period of time. How much you take out in your loan, how much time it’s going to take to pay it off, and your interest rate all affect how much you’re going to be spending paying it off every month.

There are three major factors that influence your monthly payment, and the total amount that you’re going to spend paying your car back.

The first is the loan amount. It can be a lot less that how much the car is valued at, especially if you have traded in another car for it and you are making an initial down payment. Another factor is the annual percentage rate. This is the interest rate that is going to affect the size of your loan.

Lastly, you’ve got the loan term. This is the amount of time that you will have to pay back the loan, which is anywhere between 36 and 72 months.

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. Make sure that your maturity date is realistic, and feasible enough for you to stick to.

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.