Financing 101: Understanding Terms and Interest Rates

    Birchwood understands that the various terms and interest rates associated with financing can be overwhelming. That’s why we created a comprehensive guide to vehicle financing, including definitions of key terms and different interest rates, and how you can easily apply for pre-approval directly on our website!

    Important Definitions to Know


    The principal refers to the total amount of money you will be borrowing to purchase a vehicle. It does not include interest or any additional fees.


    The term, or loan duration, is the length of time you have to repay the loan and is typically measured in months. A longer-term may result in lower monthly payments, but it also means you will pay more in interest over time.

    Down Payment

    The down payment is the initial amount of money you pay upfront when purchasing a vehicle. It is subtracted from the total cost of the vehicle and reduces the loan amount. A higher down payment can reduce your monthly payments and the overall interest paid.

    Understanding Interest Rates

    Fixed Interest Rate

    A fixed interest rate is most often used for car loans and remains constant throughout the entire loan term. This provides predictability and stability in your monthly payments, making it easier to budget for your vehicle expenses.

    Variable Interest Rate

    A variable interest rate may change over time based on market conditions. While it offers the potential for lower rates initially, it also carries the risk of increasing payments in the future.

    Compound Interest

    Compound interest includes the accumulated interest from previous periods. This type of interest is usually applied to open-ended lines of credit such as credit cards. To determine your total amount owed, including both the principal and accumulated interest, the calculation is expressed as the Annual Percentage Rate (APR). The APR represents the complete cost of borrowing and can help when comparing different financing options.

    Applying for Pre-Approval at Birchwood

    At Birchwood, we strive to make the financing process as easy as possible. With our online pre-approval process, you can apply for financing conveniently from the comfort of your home by visiting our website!  After submitting the necessary information, our team will review your application and reach out to you. Applying for pre-approval does not impact your credit score.


    Read More: How to Save Money When Financing Your Next Vehicle

    apply for vehicle financing pre-approval at birchwood

    Understanding the basics of auto financing is crucial for making informed decisions when purchasing a vehicle. Whether you’re a first-time buyer or looking to upgrade your current vehicle, our knowledgeable team is here to guide you through the financing and pre-approval process.

    We are here to help YOU drive your purchase experience and find the best terms and rates that suit your needs and budget.

    Share this Article:

    Related Articles


    2024 Hyundai SANTA FE

    Overview: Completely Reborn The all-new 2024 SANTA FE marks a new era for family adventures, with its rugged, boxy design and refined interior details that

    Read More »