Buying a Vehicle Basics

The percentage a lender charges you for borrowing money.

The total amount of money borrowed for a loan, excluding the down payment.

The scheduled length of time for a loan, such as 3 years or 5 years.

The amount of money paid up front when purchasing a vehicle.

The total cost of a vehicle, including the loan amount and the down payment.

The expense of borrowing money, typically a percentage rate charged by a lender.

The recommended amount of money you should spend on transportation costs each month.

The maximum affordable monthly payment for a vehicle loan, calculated after accounting for other transportation costs.

Getting a loan for a new vehicle often comes with better interest rates compared to used vehicles.

Buying a used car can save you money because the initial purchase price is often significantly lower.

Vehicles certified pre-owned often come with a limited warranty, providing some peace of mind for the buyer.

New vehicles may have lower taxes and registration fees.

Unlike new vehicles, used vehicles may come with unexpected repairs and maintenance costs not covered by a warranty.

Online car buying services connect you with dealerships and negotiate prices on your behalf.

New-vehicle dealerships also sell used vehicles, and often have a certified pre-owned vehicle program with lower prices.

Used-vehicle dealerships may offer lower prices, but often lack warranties and may sell vehicles in poor condition.

The price of a car, excluding taxes, title, licensing and the dealer fees

The monthly amount paid to finance a car for a specific period

The total estimated monthly expenses associated with owning a car, including payment, insurance, gas and maintenance

A fund set aside for unexpected expenses, often used to cover car repairs or emergencies

A financial strategy where your transportation costs are not more than 10% of your total income

The decrease in value of a car over time

The process of exploring various financing options for a car purchase

The amount of money you have already paid off on a loan. It's calculated by subtracting the outstanding loan balance from the car's current market value.

The difference between what you owe on a loan and the current market value of the asset. It's a negative value when you owe more than the asset is worth.

The maximum amount of time you should take to pay off a car loan. This helps you avoid being upside down, as the car's value depreciates quickly during the early years.

The amount of money you receive when you sell a car, minus the amount you still owe on the loan. It's the profit you make from selling the car.

A financial goal that helps you achieve other goals, like being able to afford a down payment on a house or retirement savings.

Insurance that covers the difference between a vehicle's value in a finance contract and the amount an insurer would pay if it's damaged beyond repair or stolen.

The overall expense associated with owning and operating a vehicle, including loan payments, insurance, fuel, repairs and maintenance.

State laws require you to carry some type of vehicle insurance, even if you pay for a vehicle in cash.

Legal minimum liability limits may not cover all costs associated with an accident, leaving you with out-of-pocket expenses.

The income you receive before taxes and other deductions are taken out.

Insurance that covers the cost of repairing or replacing a vehicle if it is damaged or stolen. Often required by lenders.

Warranties that extend beyond the manufacturer's warranty, offering protection for longer durations or for specific parts.

A financial arrangement where you pay monthly fees to use a vehicle for a set period, but don't own it. Often offers lower monthly payments and potential for driving a more expensive vehicle.

Lower monthly lease payments compared to financing a vehicle.

Leasing may involve fewer repair costs, as the lease agreement often covers these.

Paying only for the depreciation of the vehicle during the lease term, not the full purchase price.

The potential for a lease to be more expensive than buying a vehicle over a long period.

The restriction of customizing or modifying a leased vehicle.

A fee charged for exceeding the agreed-upon mileage limit in a lease.

The potential for additional costs when returning a leased vehicle, such as for wear and tear.

The lack of ownership of the vehicle while leasing.

Leasing a car can be cheaper in the short-term because you don't pay the full purchase price upfront.