Auto Loan Terms and
Financing
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.
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.
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).
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
Rebate VS. Special
Financing - which is
best.
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.
Upside-down
Describes a situation where the
balance owed on a loan is greater than the current value of a
vehicle.
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