Acceleration Clause
A clause or stipulation that allows a lender to demand payment of the total outstanding balance or demand additional collateral under certain circumstances, such as failure to make payments, bankruptcy or the breaking of loan covenants.

Agreed-Upon Selling Price
The dollar amount the buyer agrees to pay the dealer or seller of a vehicle.

Agreement of Sale
(or contract of purchase or sales agreement or purchase agreement) - A contract in which a seller agrees to sell and a buyer agrees to buy, under specific terms detailed in writing and signed by both parties.

Amortization
The process of paying the principal and interest on a loan through regularly scheduled installments.

Amount Financed
The dollar amount of the credit that is provided to the buyer.

Annual Percentage Rate (APR)
The cost of credit for one year expressed as a percentage. In other words, APR is the total cost of credit to the consumer expressed as an annual percentage of the amount of credit granted. APR is intended to make it easier to compare lenders and loan options.

Assignee
The bank, finance company, credit union, or other financial institution that purchases the finance contract from a dealer.

Balance
The amount remaining to be paid back on a loan.

Balloon Loan
A loan which creates smaller individual monthly payments, however there is usually a large payment due at the end of a loan. This type of loan will often have the advantage of very low interest payments, thus requiring very little capital outlay during the life of the loan.

Bank or Credit Union Financing
(or off-site financing) - The financing a buyer gets from his or her bank, credit union, or other financial institution to pay for a new or used car. This would be in contrast to dealer financing also know as on-site financing.

Base Price
The cost of a vehicle without options and typically the base model price for a vehicle without any extras.

Blue Book
Typically a value used by dealers to determine an asking price for their automotive inventory. Blue books typically show a wholesale price, retail price and trade-in price for each vehicle.

Cap (Interest Rate)
Limits the amount the interest rate on an adjustable rate loan may change per year and/or the life of the loan to protect the consumer.

Cap (Payment)
Limits the amount the monthly payments on an adjustable rate loan may change to protect the consumer.

Captive Finance Company
A finance company owned by an auto manufacturer and structured to finance dealers' auto inventories or to make loans to car buyers. Popular examples include General Motors Acceptance Corporation (GMAC) and Ford Motor Credit Corporation (FMCC).

Closing
(or settlement) - The meeting between the buyer, seller and lender where the car and funds legally change hands and ownership is transferred.

Cloud (On Title)
Any outstanding claim which negatively affects the vehicles title

Co-Buyer
(or co-signer) - An individual who assumes equal responsibility for a loan. The account history will be reflected on the co-buyers credit history as well as the buyers. Consumers should exercise caution if asked to be a co-buyer for someone else, because you may end up eventually being asked to repay the obligation. Co-buyers need to be sure that they can afford to do so before agreeing to be a co-buyer.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower (car buyer) risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Commitment
A written agreement between a lender and a borrower (car buyer) to loan money at a future date and subject to stated conditions.

Compound Interest
Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods.

Co-signer
(or co-buyer) - Another person who signs your loan and assumes equal responsibility for it.

Credit History
A detailed record showing how you've borrowed and repaid debts.

Credit Report
A report containing detailed information on a person's credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries. A lender will obtain one on the borrower (car buyer) with the borrower (car buyer)'s permission to determine his or her creditworthiness.

Credit Score
(or FICO score) - A number used to express how creditworthy an individual is. Factors that can damage a credit score include late payments, absence of credit references, and unfavorable credit card use. Lenders may use your credit score to determine whether to provide a loan and what rate to charge. Typically, the higher your credit score, the lower your interest rate.

Creditor
A person or organization that regularly extends credit, subject to a finance charge.

Creditworthiness
The ability of a consumer to satisfy a credit obligation; pay back loans and credit.

Customer Incentive
(or rebate) - A form of a special payment from the manufacturer to the new car customer to promote the sale of particular model or make of cars.

Dealer Add-ons
Products and/or services sold by a dealership that can be added on to the vehicle such as upholstery treatments, alarm systems, and extended warranties. Typically, add-ons increase the price of the vehicle, and your monthly payment.

Dealer Finance Income
A portion of the finance charge that is paid to or retained by the dealer as compensation for the dealer's participation in providing financing to the buyer.

Dealer Financing
(or on-site financing) - Financing that a car shopper obtains from the dealership rather than directly from a bank, credit union, or other financial institution to buy a new or used auto. The car buyer enters into a contract with the dealership agreeing to pay the amount financed, at an agreed-upon finance rate, over a specified period of time.

Dealer Holdback
An allowance given to a car dealer or money that is paid to a car dealer by an auto manufacturer. This is usually in the amount of two to three percent of the cars MSRP. This is how a dealer can sell a car at or below the invoice price and still make a profit. Car dealers pay auto manufacturers when they order their vehicles, not when they are sold. Dealers finance their car inventory through the financial arm of their manufacturer or through a local bank. This financing procedure is called a floor plan. To help their dealers keep up their inventory, manufacturers typically return the interest the dealer has to pay on those loans (floor plan) for the first 90 days by issuing them a "holdback" check every 90 days. Don't expect a holdback discount on every vehicle. If a car has been sitting on the lot for 90 days or more, all of the potential holdback profits have been wasted on interest payments that the dealer makes to floor plan (finance) the vehicle. After 90 days, the dealership has to dip into its own profits to keep the car in inventory.

Dealer Incentive
(or rebate) - A special payment from the manufacturer to the customer to promote sales of cars.

Default
Failure to repay a loan or meet the terms of a credit agreement.

Deferred Interest
(or negative amortization) If you have a payment cap (see cap definition) on a loan, your monthly payments may not be enough to cover the interest cost. If this happens, the remaining interest is deferred by adding the amount to the balance of the loan. In most cases, a lender will put a limit on the amount of interest that can be deferred and you will need to eventually increase your payments so that they are large enough to cover the interest that is due.

Delinquent Accounts
Past due credit accounts, typically classified as 30, 60, 90 and 120 days past due.

Depreciation
The amount a vehicle is expected to decrease in value over a specific period of time.

Disclosures
Information that must be given to consumers about the financial deal and transaction.

Down Payment
The part of the purchase price of a vehicle that the buyer pays in cash and does not finance with a loan. This could include any combination of cash, trade-in value of a previously-owned vehicle and rebates.

Earnest Money
(or earnest money deposit) - A deposit made by the potential buyer to show that he or she is serious about buying the vehicle.

Extended Service Contract
Optional protection on specified mechanical and electrical components of the vehicle which is available for purchase. This usually extends and/or supplements the warranty coverage provided when purchasing or leasing a car.

Finance Charge
The amount that the credit will cost the buyer.

Fixed Rate Financing
An annual percentage rate that remains the same over the life of the car loan.

Gas Guzzler Tax
A tax on the sale of new model year vehicles whose fuel economy fails to meet certain statutory levels.

General Warranty Deed
A deed which conveys the grantor's interests in and title to the vehicle to the grantee and also warrants that the grantee is liable if the title is defective or has a "cloud" (see cloud definition) on it.

Grace Period
The period of time after the due date that's allowed before a penalty is charged.

Gross Monthly Income
The total amount the borrower (car buyer) earns per month before expenses are deducted.

Guaranteed Auto Protection (GAP)
Offers protection against financial liability for individuals who finance a new or used vehicle and protects against financial loss in the event that your vehicle is damaged beyond repair (totaled) or stolen and never recovered.

Depending on the vehicle, new cars can depreciate greatly in the first 2-3 years. As a result, insurance payouts can be much lower than the vehicle purchase price-even for those with full coverage. This insurance is additional protection to cover this "gap" between what one owes on a financed vehicle and its actual cash value, which is usually lower.

Interest
The charge paid for borrowing money.

Interest Rate
The annual rate of interest on a loan expressed as a percentage of 100.

Invoice Price
The price the dealer pays to buy a car from the manufacturer. This is exclusive of hold backs or other discounts.

Lease
A form of financing in which you can use a vehicle for a period of time in return for making monthly payments. In a lease, the leasing company continues to own the vehicle.

Lien
A legal claim on ownership of the vehicle resulting from a debt. If the buyer does not make the payments, the lien holder can repossess (take back) and sell the vehicle as full or partial payment of the debt.

List Price
(or MSRP or sticker price) - The manufacturer's suggested retail price for a vehicle or what the manufacturer suggests the dealer sell the vehicle for.

Lock Term
A lender's guarantee of the loan interest rate for a set period of time. This time period is usually that between loan application approval and loan closing. This lock-in protects the buying against rate increases during that time.

Mark-up
The difference between the dealer's invoice price (what they paid for the vehicle from the manufacturer) and the price the dealer sells a car for.

MSRP
Stands for Manufacturer's Suggested Retail Price and represents the manufacturer's suggested selling price for a vehicle and each of its options to the dealer.

Negative Amortization
(or deferred interest) A loan with payment adjustment caps in addition to interest rate adjustment caps. while your payment may stay the same, the loan's interest may increase. If the interest rate rises, and you choose not to pay off any of the principal, the overall loan amount will increase. This gives it the label "negative amortization." Most loans do not have a negative amortization feature, and are designed to reduce to a zero balance by the end of their terms.

Negotiated Price
The purchase price of the vehicle agreed upon by the buyer and the dealer/seller.

Net Effective Income
The borrowers (car buyer) gross income minus federal income taxes.

Off-Site Financing
(or Bank/Credit Union Financing) - The financing a car buyer gets from their own bank, credit union or other financial institution to pay for a new or used auto.

On-Site Financing
(or dealer financing)- Financing that a car buyer obtains from the dealership rather than directly from a bank, credit union, or other financial institution to buy a new or used auto.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks and the like, which is usually computed as a percentage of face value of the loan.

Points
Points are one-time interest fees paid up front to reduce the initial interest rate of a loan. Points are a percentage of the loan amount, with one point being equal to one percent of your loan.

Principal
The amount of debt, excluding interest, left on a loan.

Rate
(or interest rate) - The annual rate of interest on a loan expressed as a percentage of 100.

Rebate
(or dealer incentive) - A special payment from the manufacturer to the customer to promote sales of cars.

Secured Credit
Financing for which some form of acceptable collateral, such as a house or car has been pledged. The credit has been secured by this asset.

Security Interest
The creditor's right to take property or a portion of property offered as security.

Sticker Price
(or list price or MSRP) - The manufacturer's suggested retail price for a vehicle.

Term
(or loan term) - The time period granted for repayment of a loan.

Title
A document that gives evidence of an individual's ownership of a vehicle.

Trade-in Allowance
The amount the dealer agrees to pay for a used, trade-in vehicle, which consumers often apply towards the purchase of a new vehicle

Trade-in Value
The value of a used vehicle that you trade in to a dealership as part of a purchase.

Unsecured Credit
Credit for which no collateral has been pledged.

Upside-down
Describes a situation where the balance owed on a loan is greater than the current value of a vehicle.

Variable Rate Financing Auto Loan
A loan in which the interest rate may vary or float periodically throughout the term of the loan. The fluctuations are generally based on an interest rate index and may be restricted under the terms of the loan.

Wraparound
A practice which permits an existing loan to be refinanced at an interest rate between the original loan rate and the current market rate.

Accident
The incident auto insurance is designed to cover. Accidents may be considered either at fault or not at fault. If you have at fault accidents on your driving record, your rates will be higher.

 

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