Glossary of Car Loan Terms

CarCashFinder.com provides this Car Loan Glossary to help educate the public about car loans.  Let's face it.  We all buy cars from time to time, but we don't always understand exactly what the car loan lender is saying.  There are a lot of special terms that you may not be familiar with.  This Glossary of Car Loan Terms will help you know exact what your banker, car dealer, and other loan lender is talking.  And that will help you get the best deal on a car loan that you can.

Car Loan Glossary

• A
  
  
• Acceleration Clause
• A clause that allows a lender to speed up the rate in which a loan is paid off, if the loan goes into default.  The clause may require the entire balance to be paid off immediately.
  
  
• Accessories
• Add-on features or extra items that are added to a car, such as a sunroof, power windows, remote entry, leather seats, tinted windows, etc.
  
  
• Acquisition Fee
• An extra fee charged by the lease provider (usually $250 - $500) which supposedly covers the cost of insurance verification, credit reports, and other paperwork on the loan.  Sometimes the fee is amortized in the monthly payment, but other times you pay the fee up front at inception.  Negotiating out of an acquisition fee or termination fee is very difficult, so don't ever sign a lease that has both! The fee is gimmick, because if you think about it, banks don’t charge an acquisition fee for car loans.
  
  
• Additional Monthly Payment
• Extra money put toward your monthly car payment reduce your principal balance more quickly and ultimately save you money.  For example, paying $350 a month when you’re only required to pay $300 to reduce the money spent on interest.
  
  
• Adjusted Capitalized Cost
• The total amount financed on a car loan.  It is the "capitalized cost" (or selling price), minus deductions such as a down payment, non-cash credits, trade-in credit, or rebates. 
  
  
• Add-ons
• Extra accessories added to your vehicle purchase, such as tinted windows, satellite radio, navigation systems, DVD players, etc.
  
  
• Agreement of Sale
• Known as a sales agreement or purchase agreement, this agreement basically states that the seller is selling the vehicle and the buyer is buying the vehicle under a specific set of legally binding terms.  Both parties must sign the contract to purchase any vehicle.
  
  
• Amortization
• The repayment of a car loan in regular payment intervals.  Each payment is split into a primary repayment and an interest fee over a set period of time.  The length of the repayment period is used to calculate the actual loan payment per month.  Loans that are amortized over a longer period than their loan term have a balloon payment.
  
  
• Amount Due at Lease Signing
• The total amount of fees and charges that must be paid up-front when leasing a vehicle.
  
  
• Amount Financed
• The total dollar amount of the credit that is provided by the lender to the buyer for the purchase of a vehicle.
  
  
• Amount Owed on Trade
• Total loan balance still owed on a vehicle that is to be used as a trade-in. 
  
  
• Annual Interest Rate
• The rate that interest is paid by a borrower to a lender over the period of a year. 
  
  
• Annual Percentage Rate (APR)
• Not to be confused with interest rate, an APR combines fees, charges, and rates to show the total cost of credit over a year.  APR is a percentage that is designed to help borrowers compare different loan options, even when the various charges and length of repayment are very different.  The APR on a car loan is also known as the “contract rate” or the “finance rate.”
  
  
• Asking price
• The price that a dealership advertises for a particular car, usually written on the windshield in large letters.  It is called 'asking price' because the dealer is open for negotiation. 
  
  
• Asset
• Property that can be used as collateral to repay a debt.  Common assets include stocks, bonds, cars, houses, trust funds, etc.
  
  
• Assignment
• The transfer of a loan from one lender to another or from a car dealership to a lender. 
  
  
• Automated Teller Machines (ATMs)
• Computerized machines from which customers can withdrawal money, deposit money, or receive a statement of the balance on their bank accounts or credit cards.
  
  
• A.W.A.R.E.
• Americans Well-informed on Automotive Retailing Economics.  A coalition of auto dealers and financial services companies involved with auto financing that was formed to provide consumers with the information, tools and resources they need to make informed decisions when financing an automobile.  The mission of AWARE is to ensure that this system remains available and affordable for the broadest possible spectrum of consumers.
  
  
• B
  
  
• Balloon Payment
• The total final payment for all loans that are amortized over a period of time longer than the loan term.  The balloon payment is the total interest and principal balance due at the end of the loan term.  (If the loan term is the same as the amortization, this amount is will be zero.)
  
  
• Bank Fee
• An extra fee sometimes tacked onto a car loan to pay the leasing company for their services.  Also known as a Dealer Service Fee.
  
  
• Bank or Credit Union Financing
• When a person gets a loan from his or her bank, credit union, or other financial institution to pay for a new or used car.  Also see “Off-site Financing.”
  
  
• Bankruptcy
• A federal court proceeding in a in which an insolvent debtor's assets are liquidated and the debtor is relieved of further liability.
  
  
• Chapter 7 - Liquidation - Is faster to complete, giving the debtor a financial "fresh start" without the years of sacrifice, however, most personal property with value is forfeited.
  
• Most people will qualify for a car loan after bankruptcy.
• Some lenders will approve loans prior to discharge.  This enables a person to get a new vehicle prior to surrendering their current vehicle to the courts.
  
  
• Chapter 13 - Reorganization - Allows an individual to begin debt repayment without forfeiting property.  It requires that the debtor maintain a source of income and adhere to a payment schedule set forth by the court.
  
• Few lenders will approve an auto loan while a person is in a Chapter 13 Bankruptcy.
• The lenders that will require an "Authorization to Incur Debt" from the bankruptcy court.
• This document may take up to 6 weeks to obtain.
  
  
• Base Monthly Payment
• Part of the monthly payment which is the depreciation during the lease.  It is calculated as (Net Capitalized Cost - Residual) ÷ (number of months in lease).  The base monthly payment is added to the tax and monthly interest to produce the total monthly payment.
  
  
• Base price
• The agreed upon price of a car prior to figuring in options.  Base price includes the manufacturer's warranty and the standard equipment without extra features.
  
  
• Billing Error
• Any kind of mistake in your monthly billing statement as defined by the Fair Credit Billing Act.
  
  
  
• Black Book
• One the three nationally recognized vehicle valuation services that are used to determine a car’s value.  The other two are NADA® and Kelly Blue Book®.
  
  
• Blue Book
• A special price guide that denotes the fair value of cars and is commonly used to determine the trade-in value of a vehicle.  The other two nationally recognized vehicle valuation services are NADA® and Black Book®. 
  
  
• Book Value
• The published value of a vehicle.  The three nationally recognized vehicle valuation services are NADA®, Kelly Blue Book®, and Black Book®. 
  
  
• Broker
• Someone who professionally assists clients in negotiating contracts and/or in arranging funds, but who does not actually loan the money themselves.
  
  
• Business Days
• The normal days of the week that a company is open for business; usually Monday through Friday.  Typically, national holidays and weekends are not considered business days. 
  
  
• Buyer’s Order
• A document that servers as the legal contract between a Buyer and a Seller. 
  
  
• Buyers Guide
• The Federal Trade Commission's (FTC) Used Car Rule requires dealers to post a Buyers Guide in every used car they offer for sale.  The Buyers Guide must tell you: • Whether the vehicle is being sold "as is" or with a warranty. • What percentage of the repair costs a dealer will pay under the warranty. • That spoken promises are difficult to enforce. • To get all promises in writing. • To keep the Buyers Guide for reference after the sale. • The major mechanical and electrical systems on the car, including some of the major problems you should look out for. • To ask to have the car inspected by an independent mechanic before you buy.
  
  
• C
  
  
• Car Buying Services
• Online networks of participating members who typically offer better pricing via internet based referrals than traditional dealerships who finance.  The services work well because you finance a car with a salaried lending professional instead of commissioned salespeople. 
  
  
• Car Title
• Also known as the “Certificate of Title,” it is a certificate denoting legal ownership of a car.  The Department of Motor Vehicles will issue a title once they have confirmed ownership of a vehicle and any applicable fees have been paid.  Those fees vary by county and state.
  
  
• CARFAX Report
• A publicly available report about the known history of a vehicle based on the VIN number.  The report contains information about previous owners of the car, if the car was ever stolen or in an accident, as well as if any notable repairs have been performed. 
  
  
• Cash Down
• Total amount of cash used as a down payment on a vehicle.  The more cash down a person can afford, the smaller the loan they will need to repay.  Also known as a “down payment.”
  
  
• Capitalized Cost
• The selling price of a car including any options, warranties, insurance, rust proofing, etc.  Think of this as the value of your car at the beginning of the lease, whereas the residual value is the value of the car at the end of the lease.
  
  
• Capitalized Cost Reduction
• A fancy name for “cash down.” It is anything that reduces the capitalized cost of the car loan before the monthly payment is calculated.  This includes cash down, trade-ins, the manufacturer's rebate, etc.  Typically, dealerships will try not to give you the factory rebate if you lease.  As far as the factory is concerned, the dealer still sold the car and still qualifies for the rebate.
  
  
• Certificate of Title
• Also known as the “Car Title,” it is a certificate indicating legal ownership of a car.  The Department of Motor Vehicles will issue a title once they have confirmed said ownership and any applicable fees have been paid.  Those fees vary by county and state.
  
  
• Charge Off
• Debts that the original creditor has given up on trying to collect.  These Charge Offs will often show up twice on a credit report -- once from the original creditor as Applied for Credit, and once from a collection agency as Unapplied for Credit. 
  
  
• Closed End Lease
• Ideally, the only kind of lease a person should ever get.  At the end of the lease agreement you can simply return the car with no obligations.  You have the option to buy it if you like at the residual value, but you’re not obligated to.  This type of lease is, however, considered more high-risk by lenders and therefore is typically more expensive than a regular lease.
  
  
• Closing
• A meeting between the buyer, seller, and lender.  This is where the property and funds legally change hands.  Also called a “settlement.”
  
  
• Cloud (On Title)
• An outstanding claim which negatively affects the marketability of a title. 
  
  
• Collateral
• Property offered to attain a car loan, which can be seized if you default on your payments.  Usually cars, boats, and houses are accepted as collateral if you own the title.
  
  
• Co-Buyer
• An individual who assumes equal responsibility for the contract.  The account history will be reflected on the co-buyer’s credit history as well as the buyer’s.  For this reason, consumers should exercise caution if asked to be a co-buyer for someone else.  Since many co-buyers are eventually asked to repay the obligation, people need to be sure that they can afford to do so before agreeing to be someone’s co-buyer.  Unlike a Co-Signer a Co-Buyer's income is combined with the Buyer's.  This option is normally limited to a spouse or a person closely related residing at the same residence. 
  
  
• Commission
• When a salesperson or broker is paid money for completing a sale.  Commission motivates the sales team to sell more, often at the buyers expense.
  
  
• Commitment
• An written legal agreement between a lender and a borrower to loan money at a future date.
  
  
• Commitment Fee
• An upfront fee on a “commitment” which is included in the APR calculation.
  
  
• Compound Interest
• Interest payable on income and its accumulated interest.  The opposite of simple interest which is paid only on the principal.
  
  
• Co-Signer
• A person who takes on legal responsibility for repayment of a loan in the event that the borrower does not pay.  A cosigner may be used when the buyer does not comply with all the credit requirements.  The income of the buyer, however, must meet all the income and budget guidelines without reliance upon the income of the cosigner. 
  
  
• Credit
• An alternative to cash in that it is a promise to pay a debt at a later time, usually with interest and fees.  A person’s credit report entitles them to be trusted in buying goods or borrowing money.  A person may have good credit, bad, or no credit based on their credit score and credit history.
  
  
• Credit Card
• A person-specific card used to borrow money or buy goods or services on credit.  Visa, MasterCard, American Express, and Discover are popular examples.
  
  
• Creditor
• A lender to whom money is owed.  A business that has provides goods or services on credit and is legally entitled to be repaid.
  
  
• Creditworthiness
• The ability to repay debts in the past and future, based on a person’s credit history and credit report. 
  
  
• Credit Application
• The form that a buyer submits to a dealership when applying to finance a car.  The application may require a driver’s license, name, Social Security number, date of birth, current and previous addresses and length of stay, current and previous employers and length of employment, occupation, sources of income, total gross monthly income, and financial information on existing credit accounts.
  
  
• Credit Bureau

• An agency that compiles, maintains, and provides credit and other personal information to creditors.  There are three major credit reporting agencies:

  
  
  Equifax®
  

  P.O.  Box 740241
  Atlanta, GA 30374-0241
  Phone: (800)685-1111

  
  TransUnion®

  P.O.  Box 19022
  Chester, PA 19022
  Phone: (800)916-8800

  
  Experian® (formerly TRW)

  P.O.  Box 2002
  Allen, TX 75013
  Phone: (888)397-3742

  
  
• Credit Counseling
• A process where a third party negotiates with creditors and establishes a payment plan on behalf of the debtor.  The fact that a person is in credit counseling is usually reported to the credit bureaus and is listed on the credit report.  Similar to a Chapter 13 Bankruptcy, few lenders will approve an auto loan while a person is in credit counseling.
  
  
• Credit Insurance
• There are two common types of credit insurance.  Credit life insurance is optional insurance that pays the scheduled unpaid balance if the buyer dies.  Credit disability insurance (sometimes called credit accident and health insurance) pays the scheduled monthly payments if the buyer becomes disabled.  As with most contract terms, the cost of optional credit insurance must be disclosed in writing, and if the buyer wants it, the buyer must agree to it and sign for it.
  
  
• Credit Profile
• A report of how an individual has paid back the companies that they have borrowed money from, or how they have met other financial obligations. 
  
  
• Credit Report
• A report containing information about the buyer’s current and past credit obligations, payment record and data from public records (e.g.  a bankruptcy filing obtained from court documents).  For each account, the credit report shows the applicant’s account number, type and terms of the account, credit limit, most recent balance and most recent payment.  The comments section describes the current status of the applicant’s account, including the creditor’s summary of past-due information and any legal steps that may have been taken to collect.
  
  
• Credit Score
• A statistical formula that assigns a numerical value to your credit worthiness.  There are many different score models.  When you apply for an auto loan the lender is most likely viewing your "Car Enhanced Score".  This score may be higher or lower than your regular credit score.  Scores can vary widely among all three credit bureaus. 
  
  
• Credit Scoring
• A system used by banks and other lending institutions to determine whether or not you are creditworthy.  Each lender uses their own score card to determine if they will approve an auto loan. 
  
  
• Credit Scoring System
• A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.
  
  
• D
  
  
• Dealership
• A business that sells new and/or used vehicles.  Dealerships often offer their own financing, although it is more expensive than financing a vehicle through a 3rd party, such as CarCashFinder.com
  
  
• Dealer Financing
• A consumer buys a new or used auto from a dealership and obtains financing from the dealership rather than directly from a bank, credit union or other financial institution.  The consumer 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.  This is almost always more costly than the alternatives.  Also see “Off-site Financing.”
  
  
• Dealer Finance Income
• This is 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.  All finance charges, of which the dealer compensation is a part, may be negotiated.  Dealer finance income is sometimes referred to as dealer reserve.
  
  
• Dealer Hold-Back
• A 2-3% profit window given to dealers by manufacturers.
  
  
• Dealer Incentives
• Incentive programs given to dealers by car manufacturers that are designed to help sell vehicles or to get rid of surplus cars in inventory.  Typically, the buyer will also benefit from the savings.
  
  
• Dealer Invoice
• The cost of a vehicle paid by the dealership, including the delivery of the vehicle.  The dealer invoice is usually reduced by dealer rebates and other incentives.
  
  
• Dealer Prep
• Never pay this fee.  This is when the dealer will try and charge you a fee for the preparation of your vehicle.  However, the dealers are already paid this fee by the manufacturers. 
  
  
• Dealer Sticker Price
• Required by law to be positioned on the window of every car in a dealership.  Includes the base price, standard features, add-ons with their retail prices, fuel economy, delivery charges, and the manufacturer’s suggested retail price (MSRP).  Also see “Asking Price.”
  
  
• Dealer Service Fee
• A useless fee added on for higher profits.  If the lender leases you a car at MSRP, they are already making enough money that you shouldn’t need to pay a service fee.  Also see Bank Fee. 
  
  
• Debit Card (EFT Card)
• A personalized card, much like a credit card, that an individual can use to make purchases and other electronic transactions using money in their bank account.  The advantage of a debit card is that you are not adding to your debt or paying interest.
  
  
• Debt Ratio
• The amount of money you earn compared to how much money you owe.  The lower your debt ratio, the more disposable income you have and the easier it will be to get a loan.
  
  
• Default
• Failure to repay a loan or otherwise meet the terms of your credit agreement.
  
  
• Delinquency
• Failure to make payments on time, usually resulting in financial penalties such as late fees.
  
  
• Deficiency Balance
• Any amount you still owe on your contract after your creditor or lessor sells the vehicle and applies the amount received to your unpaid obligation.  This also applies to lease turn-ins with over mileage charges. 
  
  
• Depreciation

• The decline in value of an asset over a period of time.  The drop in value that the car is predicted to have during your lease.  It's the difference between the adjusted capitalized cost and the residual value.  Depreciation is part of what your monthly payments are paying for.  That's why you want the lowest cap cost and the highest residual value:

  
  Monthly Depreciation Fee = ( Net Cap Cost - Residual ) ÷ Lease Term
  
  

  * If you lease a car for 36 months whose net cap cost is $18000 and the dealer says the car is worth $14000 at lease end, your monthly depreciation fee is (18000-14000) ÷ 36 = $111.11.  This is 1 of 3 components of your monthly payment, along with finance fee (interest) and taxes.

  
  
  
• Destination Charge
• The cost you are charged by a dealership for having the car delivered to the dealership from the manufacturer.
  
  
• Direct Lender
• A loan provider who supplies loans directly to consumers.  For example, a bank or credit union.
  
  
• Disclosures
• Information about a vehicle’s history that is given to the consumer, such as accidents or repairs that has been done to the car.
  
  
• Disclosure Statement
• A statement of the total amount and cost of a loan, including the principal loan amount, interest rate, and any additional finance charges or loan fees.  The disclosure statement is contained within a bold box on the retail installment (finance) contract. 
  
  
• Disability Insurance
• Insurance that pays your monthly payment if you are unable to work due to illness or injury.  There is normally a waiting period: • 14 Day Retro -If you are disabled for 14 days before a claim is made.  With a doctor’s certificate the first payment is retroactive to the day the disability took place.  Payments cease when you return to work. • 30 Day Retro - If you are disabled for 30 days before a claim is made.  With a doctor’s certificate the first payment is retroactive to the day the disability took place.  Payments cease when you return to work. • 30 Day Elimination - If you are disabled for 30 days before a claim is made.  With a doctor’s certificate the payments begin after the waiting period.  Payments cease when you return to work.
  
  
• Disposition Fee
• An added charge by a leasing company at lease end to "fix it up for resale." Many people don't realize this fee is not declared on the first page of the lease with the other numbers, it's buried in the fine print of the "end of lease requirements" section.  Some dealers claim this helps pay for cleaning up the car before resale.  But they charge the next owner for that, right? Did you ever hear the dealer justify their high cost on a used car by saying they "had to recondition it?” The dealer is trying to collect twice.  Tell them to let the next owner of the car pay for it, not you.
  
  
• Down Payment
• The amount of money that is initially given to the lender up front to lower the amount financed, and therefore the interest on the loan.  The down payment on a lease is often called a "capital reduction."
  
  
• E
  
  
• Early Termination Fee
• A very steep penalty that must be paid when a person terminates their lease early or total the car in a wreck.  The fee could be several thousand dollars, so early lease termination should be avoided at all costs.
  
  
• Earnest Money
• The money a buyer gives to a seller as part of the purchase price to bind a transaction or assure payment.
  
  
• Employment Insurance
• Not available in every state.  This insurance pays your monthly car loan payment if you involuntarily lose your job. 
  
  
• Elderly Applicant
• As defined in the Equal Credit Opportunity Act, a person 62 or older.
  
  
• Electronic Fund Transfer (EFT) Systems
• A technology for transferring funds electronically rather than by check.
  
  
• EMI
• A fixed payment made monthly, known as Equated Monthly Installments.
  
  
• Equity
• The residual value of a business or property beyond any mortgage thereon and liability therein.
  
  
• Equal Credit Opportunity Act (ECOA)
• A federal law that requires lenders and creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
  
  
• Excess Mileage
• The miles driven on a leased car that go over the limit set by the lessor.  Typically limited to 10,000 - 15,000 miles annually.  Excess miles on a leased vehicle cost an extra so many cents per mile.  Watch the mileage, or you'll owe a lot at the end.  An extra 2,000 miles a year on a 3 year lease could easily cost you $900 or more.  Don't pay for extra mileage up front, you won't get a refund if you don't drive excess miles.  The dealers don't tell you about this little clause, it's buried in the writing, and by signing the lease you effectively said that you read and understood everything.
  
  
• Excess Wear & Tear
• Damage or wear on the car beyond normal wear and tear.  Many people are frustrated when hit with a large bill for "wear and tear" at the end of the lease, even if the car is in good condition.  Read the lease and understand what it says about excess wear and tear.  Have the dealer explain their standards of "excess" wear.  Try to get out of paying a security deposit.  The car must have 4 matching tires, or they'll bill you for 4 new tires at full retail.
  
  
• Excess Wear Charge
• Charges you pay when you return a leased car in a condition that is greater than the wear-and-tear limits.
  
  
• Extended Service Contract
• Covers the cost of unexpected auto repairs.  Service contracts normally have a per visit deductible and most do not cover normal wear items such as break pads. 
  
  
• Extended Warranty
• Commonly known as a “service contract,” the extended warranty pays for repairs and services that exceed basic warranty coverage. 
  
  
• F
  
  
• Fees
• Money that a customer must pay for a contract or service.  There are all sorts of fees that are often combined into a single reoccurring bill.
  
  
• Financing
• To secure a loan or credit through a contract with a financier, or lender.  Financing is typically required to pay for the cost of buying a car, buying a house, opening a business, etc.
  
  
• Finance Charges
• A set percentage charged to a borrower by a lender.  To calculate the finance charge, subtract the total of all the payments from the total amount borrowed. 
  
  
• Finance Fee
• Also called Lease Charge, or more commonly, Rent Charge, this is the "interest" or profit that the leasing company charges you.  Here's how they calculate it: Finance Fee = ( Net Cap Cost + Residual ) × Money Factor. * Interest on a loan and interest on a lease are NOT the same thing. You read correctly, it's not an error.  They add Net Cap Cost and Residual.  It's not double counting, it's a simple method to arrive at the finance fee without using complex formulas.  This makes calculating rent charges for leasing much easier than those for loans, which use a more complex formula.  The money factor takes into account the addition, so don't panic.  To get the equivalent APR interest rate, multiply the money factor by 2400.  This gives us an idea of what interest rate is being used as the "seed" into the rent charge formula.  This is where the similarity between leases and loans ends.  Loans use a complex formula for interest, and some calculators can figure out loan payments.  Now here's the difference.  Lease interest payments use a different formula than loans.  For leases, It helps to say "rent charge", which is less confusing than interest rate, so that you don't use the wrong formula.  Rent charge uses the Finance Fee formula above.  A money factor of .00333 is "equivalent" to 8% APR, but it's not an interest rate, it's just a number used as a seed into their calculations.  In a loan they have a fancy formula for interest, but with leases, rent charge = (Adjusted cap cost + residual) * money factor.  With leasing, you don't need a business calculator to figure out the rent charge, just one that can add and multiply.
  
  
• Finance Rate
• The interest rate associated with your auto loan.  Otherwise known as the annual percentage rate (APR).
  
  
• Fixed Interest Rate
• A fee charged for the use of borrowed money, based upon a set percentage rate. 
  
  
• Fixed Rate Financing
• An annual percentage rate that remains the same over the life of the financing contract.
  
  
• Forced Placed Insurance
• If a lender discovers that there is no insurance covering your automobile, they can take out a special policy to cover the loan.  This kind of insurance is expensive and it only covers the collateral.  The lender will then add the premium costs of the new policy to your loan.
  
  
• G
  
  
• Gap Insurance
• Guaranteed auto protection.  If your leased car is stolen or totaled, your insurance will pay for the damage or loss.  It won't help you make payments still owed to the leasing company.  Gap insurance covers the gap, between the value of your car and the amount you still owe on your lease, including a possible penalty for early termination of the lease.  It's illegal for a dealer to require that you buy it for any reason, including bad credit, or qualifying for a loan.  If they say it's required, tell them to put that in writing, then turn it over to the State Attorney's office.  Everyone who leases should buy gap insurance, but try to buy it through your insurance agent instead of the dealer, or you'll be charged double the cost.
  
  
• General Warranty Deed
• A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
  
  
• Gross Capitalized Cost
• Selling price of the car.  Sometimes dealer acquisition fees are included in this amount.
  
  
• Gross Monthly Income
• The total amount the borrower earns per month, before any expenses are deducted (such as taxes or 401k plan).
  
  
• Guarantee
• A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
  
  
• Guaranteed Auto Protection (GAP)
• Optional protection that pays the difference between the amount the buyer owes on the auto and the amount the buyer receives from his insurance company if the auto is stolen or destroyed before the buyer has satisfied the credit obligation.  In some cases, the buyer may be responsible for the insurance deductible.
  
  
• H
  
  
• Hazard Insurance
• A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
  
  
• Home Equity Closing Costs
• Any additional costs to the home equity loan.  This should include any appraiser fees, points paid or other misc.  fees. 
  
  
• Home equity interest rate (APR)
• Annual percentage rate for the home equity loan. 
  
  
• I
  
  
• Impound
• That portion of a borrower's monthly payments held by the lender or service to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.  Also known as “reserves.”
  
  
• Inception
• The date and time on which coverage under an insurance policy takes effect.
  
  
• Index
• A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S.  Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
  
  
• Indirect Lender
• A company that purchases loan contracts from auto dealers but does not lend directly to consumers.  For example, Ford Credit or GMAC.
  
  
• Installment Credit
• Loans that have a fixed monthly payment for a fixed period of time.  These items are the most important items on your credit report when you apply for an auto loan.  Examples include auto loan and mortgages. 
  
  
• Insurance
• Leases require huge insurance coverage such as bodily injury or death liability, property damage liability, and comprehensive & collision liability.  Most insurance requires the holder to pay a deductible.
  
  
• Interest
• A charge by the lender, expressed as a percentage of the total amount of a loan.  The borrower pays this charge as payment for the loan.
  
  
• Interest Rate
• A percentage amount of interest that a borrower must pay their lender for a loan.  Be careful when leasing because they don't quote interest rates with car leases.  That way you can't check their numbers and discover that they forgot to give you credit for your trade-in, or slipped in that credit life insurance undetected.  Instead they quote "Money Factors." To arrive at the equivalent APR interest, multiply the money factor by 2400. 
  
  
• Investment Rate of Return
• Rate of return on investments.  This is the return that you would make if you were to invest your down payment or security deposit instead of using it in your auto purchase or lease.  The actual rate of return is largely dependent on the type of investments you select.  For example, from January 1970 to February 2003 the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11%.  Savings accounts at a bank pay as little as 2% or less.  It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility.  The actual rate of return on investments can vary widely over time, especially for long-term investments.  This includes the potential loss of principal on your investment. 
  
  
• J
  
  
• Joint Account
• An account shared by two or more people with a financial institution, such as a bank, in which all parties involved share legal responsibility to repay loans or debts of this account.
  
  
• Judgments
• A court order to repay a debt.  A creditor with a judgment in their favor may request a wage garnishment to repay the debt. 
  
  
• K
  
  
• Kelly Blue Book
• A special price guide that indicates the fair value of cars.  Commonly used to determine the trade-in value of a vehicle.
  
  
• L
  
  
• Lease
• A contract that grants you use of a vehicle for a certain amount of time.  You will have monthly payments similar to a car loan.  You will have the option of buying the car at the conclusion of your lease. 
  
  
• Lending Rate
• The interest charged by the financier on the amount financed.
  
  
• Length of Contract
• The total number of months the borrower has to pay the amount financed.
  
  
• Lessee
• A person who signs a lease to have temporary use of a vehicle.
  
  
• Lessor
• The company that provides temporary use of a vehicle in return for periodic payment.
  
  
• Lease Extension
• Allows you to extend the terms of your lease, with the same monthly payments.
  
  
• Life Insurance
• Credit life insurance pays off the balance of your loan upon your death. 
  
  
• Loan Amount
• The total dollar amount of a loan. 
  
  
• Loan Length
• Total length, or term, of your original car loan in months. 
  
  
• Loan Tenure
• The time duration for which a loan has been provided.
  
  
• Loan Term
• The number of months it will take you to repay a loan. 
  
  
• Loan to Value (LTV)
• The amount of a car loan relative to the published book value of the vehicle.  Lower LTV's have a better chance of approval. 
  
  
• M
  
  
• Margin Money
• Financiers do not fund the full value of the asset.  They expect the customer to bring a certain % of the asset as margin.  This is called Margin Money.
  
  
• Market Value of Vehicle
• Value of your car after the lease term is over. 
  
  
• Mileage Charge
• The cost you pay when you drive the vehicle you lease more than the annual mileage limits.
  
  
• Minimum Down Payment
• Few lenders will approve an auto loan for someone with bad credit without a down payment. 
  
  
• Monthly Accelerated Payment
• Scheduled payment plus additional monthly payment. 
  
  
• Monthly Loan Payment
• Monthly principal and interest payment (PI). 
  
  
• Monthly Scheduled Payment
• Monthly principal and interest payment based on your original loan amount, term and interest rate. 
  
  
• Money Factor
• A number used to calculate finance charges (interest) for your monthly payment.  To get the APR, multiply the money factor by 2,400.  For example, a money factor of .003333, yields an interest rate of (.003333*2400) = 8%.  If you were unaware of the 2400, how could you check their numbers? This is how they hide extras, and slip in credit life insurance, because you can't tell what makes up your monthly payment, or even how to calculate it, until now.  When converting money factor to APR, it should at least be comparable to, or lower than local new car loan interest rates.  Like interest, the lower the money factor, the lower your monthly payments.  Ford has a strange way of calculating money factor that is different from the rest of the industry. 
  
  
• Monthly Lease Payment
• The monthly lease payments made over the term of the lease.  Monthly lease payments are made up of 3 parts: 1) depreciation, 2) rent charge and 3) sales tax.  You pay the leasing company for the loss in value of its car, as well as interest on the money they have tied up in the car.  Beware, many ads show a low ball monthly payment that don't include tax.  The ad for a BMW or Lexus for a $399 a month has fine print that says "plus tax", meaning they are understating the real monthly payment by $23.94 (6% tax in Florida).
  
  
• Monthly Loan Payment
• The total amount owed on a car loan each month, including interest and fees.
  
  
• Monthly Payment Amount
• The dollar amount due each month agreed upon in the financing agreement.
  
  
• Mortgage Statement
• Lenders may require a photocopy of your most recent mortgage statement is to verify your monthly mortgage obligation. 
  
  
• MSRP
• Known as Manufacturers Suggested Retail Price, this is the cost of a car with add-ons.  A person should always negotiate the price of a car, rather than paying the full MSRP.
  
  
• N
  
  
• NADA
• One the three nationally recognized vehicle valuation services that are used to determine a car’s value.  The other two are Kelly Blue Book® and Black Book®.
  
  
• Negotiated Price of Car
• The purchase price of the car agreed upon by the buyer and the dealer after negotiations.
  
  
• Negative Trade Equity
• The difference between the lien payoff and the value of your trade in.  This is a Negative Number.
  
  
• Net Capitalized Cost
• The total amount financed on a car loan.  It is the "capitalized cost" (or selling price), minus deductions such as a down payment, non-cash credits, trade-in credit, or rebates. 
  
  
• Net Effective Income
• The gross income of the borrower, minus the percentage removed for federal and/or state income tax.
  
  
• Net Trade-in Allowance
• This is the amount the dealer is giving you for your trade-in, after paying off any loan balance on your trade-in.  If you were upside down on your loan, whatever is left is financed into the lease, effectively increasing the adjusted capital cost of the leased car.  They don't go out of their way to inform you about this either.  Many dealers run ads yelling out "We'll pay off your car no matter how much you own." So you are tricked into thinking your old loan is gone, but it's not.  They just moved your loan balance over to the lease and blended it in.
  
  
• Non-Taxable Fees
• Any additional fee that is not subject to sales tax.  This usually includes document fees or any other fees that may be due at delivery and are not taxable. 
  
  
• No Sales Tax Deduction for Trade-In
• In some states sales tax is calculated on your full purchase price.  Others calculate tax based on the purchase price less trade in.  Currently California, the District of Columbia, Hawaii, Maryland, Michigan allow no deductions for trade-ins when calculating sales tax.  In addition, Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax on new vehicles. 
  
  
• NUMBER OF PAYMENTS
• The number of payments the buyer is required to make according to the financing agreement.
  
  
• O
  
  
• Off-Site Financing
• A buyer gets a loan from his or her bank, credit union or other financial institution to pay for a new or used auto.  Also called Bank or Credit Union Financing.
  
  
• On-Site Financing
• A consumer buys a new or used auto from a dealership and obtains financing from the dealership rather than directly from a bank, credit union or other financial institution.  The consumer 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.  Also known as dealer financing.
  
  
• Open Credit
• Loans that must be paid in full each month. 
  
  
• Open-End Lease
• Type of lease where the buyer must pay the difference between the market value of the car and the residual value at the conclusion of the lease. 
  
  
• Original Loan Amount
• The original amount financed with your auto loan, not to be confused with the remaining balance or principal balance. 
  
  
• Origination Fee
• The dollar amount charged as a loan origination fee, which is included in the Annual Percentage Rate (APR) calculation.  For many loans a 1% origination fee is common.  For example: a 1% fee on a $120,000 loan would cost $1,200. 
  
  
• Other Costs
• Any other costs that should be included in the APR calculation. 
  
  
• Other Fees
• Any fee, other than a capital reduction or down payment, required to be paid at the close of the lease or loan.  This may include license, title transfer fees, fees included in the APR calculation, etc. 
  
  
• P
  
  
• Payment
• Payments received are first applied to (collection) fees, then to accrued interest, and finally to the outstanding principal balance. 
  
  
• Payment to Income Ratio
• Your monthly car payment compared to your gross monthly income.  Most lenders prefer this ratio to be less than 15%. 
  
  
• Percent of Purchase Price
• Check this to put a percent of the purchase price as your cash down.  This money will be used for fees and your down payment. 
  
  
• Point-of-Sale (POS)
• The physical location at which a purchase is made by the consumer.  Additionally, a method a taking electronic payment from a consumer without the need for a traditional check.
  
  
• Prepayment Penalty
• A bank imposed fee for early payment of a loan.  This penalty is meant to protect the bank from lost income not generated from interest on the loan.
  
  
• Principal
• The amount borrowed, or the amount on which you pay interest and must pay back, which may increase as a result of capitalization of interest. 
  
  
• Principal Balance
• The portion of the original loan, plus capitalized interest, which the borrower has not yet satisfied through payment or cancellation. 
  
  
• Proof of Address (POR)
  

  Acceptable forms of POR include utility bills, credit card statements or anything received through the mail which contain the following:

  
  
• W2 Income
  

  This type of income is most important to a lender because it is attachable (it can be garnished).

  
  
• Acceptable POI includes:
  

  Computerized pay stubs with year-to-date calculations.
  Four consecutive handwritten pay stubs and previous years' W-2.  Often, cancelled checks from the employer are required.

  
  
• Self Employment or 1099
  

  This type of income must be verified with tax returns prepared by a professional tax service.  Lenders require two years' tax returns.  It is rare for a lender to approve a person with bad credit that has been self employeed for less than two years.  Lenders use a customer's adjusted gross income.  That is income net of all expenses.  This can be found on Schedule C of a tax return, or line 31 of the 1040.

  
  
• Child Support
  

  A copy of the court order and a recent check or check stub will likely be required.  Lenders may not count this type of income if it will not last for the length of the car loan.

  
  
• Social Security
  

  Form SSA 1099 and a bank statement showing deposits will likely be required.

  
  
• Unreported Income
  

  Income from cash jobs is not counted when calculating income.

  
  
• Purchase Price
• Total purchase price.  Price should be after any manufacturer's rebate. 
  
  
• Purchase Option Fee
• A fee charged if you opt to buy the vehicle at the end of a lease.  Negotiate it out.  That's icing that belongs on your cake, not theirs.
  
  
• Purchase Option Price
• Selling price of the vehicle if you buy it at the end of the lease.  This is usually the residual value.
  
  
• Q
  
  
• R
  
  
• Rate
• See Interest Rate.
  
  
• Rate of Depreciation
• The rate of depreciation gauges how fast your new automobile will lose its market value.  A high depreciation rate is about 20% per year, medium is 15% per year and low is 10% per year. 
  
  
• RC Book
• Regional Transport Office (RTO), registers each car that exists in the United States and provides owners with a Registration Book (RC) which contains details on the Name of the Owner, address, technical specifications etc.
  
  
• Rebate
• The lowering of a vehicle's price by the manufacturer to help increase sales. 
  
  
• Refinancing
• To provide new financing for an existing loan.  The existing loan is paid with the Proceeds from the new loan.  Typically the new loan is at a lower rate, or has a longer term than the previous loan.
  
  
• Registered Owner
• Name of the person in whose name the vehicle is registered.
  
  
• Rentals
• The repayment amounts paid in a lease contract.
  
  
• Residual Value
• The amount your car leasing company estimates your car will be worth at the end of your car lease, generally defined as a percentage of MSRP.
  
  
• Repossession
• Is when your car is taken away from you when you fail to make auto loan payments.
  
  
• Residual percent
• For leases, this is remaining value after the lease term expires.  The higher this amount, the lower your lease payment will be. 
  
  
• Residual value
• The estimated worth of a vehicle when it is brought back after the lease expires. 
  
  
• Residential Lease Agreement
• Some Lenders require proof of your monthly rental or lease obligation.  Often the landlords phone number is required for verbal verification
  
  
• Revolving Credit
• Loans that do not have a fixed monthly payment nor a fixed period of time.  Examples include credit cards and home equity lines of credit. 
  
  
• Rule of 78’s
• Dealers typically no longer use this policy.  It is a refund of finance costs for paying your auto loan off early.
  
  
• S
  
  
• Sale Certificate
• Certificate issued by the dealer on the sale of a car which is required to be submitted to the RTO for registration.
  
  
• Sales Tax
• They usually tax the monthly lease payment at the local sales tax rate and add it to the base payment to get your total monthly payment.  Check with the state to verify they are sending this full amount into the state or they could be in big trouble.  Illinois & Texas dealers tax you on the full amount of the car, which is wrong, because you should only pay taxes on the portion you are using.
  
  
• Sales Tax Rate
• Percentage sales tax to be charged on this purchase.  Sales tax is included in each lease payment.  Sales tax for buying is charged on the total sale amount. 
  
  
• Security Deposit
• Usually equal to one month's payment paid up front as security for excess wear and tear.  They usually call it "refundable", but you know they'll come up with some excuse to keep it at the end to keep it due to excess wear, or for new tires.
  
  
• Service Charge
• Additionally charges based upon the completion of the defined service.  May encompass a number of different charges.  Services charges may relate to the financial aspects of processing a loan.  A Dealer service charge may include preparation of the vehicle for delivery.
  
  
• Settlement
• A meeting between the buyer, seller, and lender.  This is where the property and funds legally change hands.  Also called “closing.”
  
  
• Simple Interest
• A flat rate of interest that is not compounded, generally expressed as an annual rate.  One day of simple interest is calculated by: loan balance x interest rate = daily amount of interest 365 (days in a year). 
  
  
• Stamp Duty
• Government levies a duty on certain legal documents and financial contracts.
  
  
• Standing Instructions
• Instructions to a bank to debit a fixed amount from your account for your bad credit auto loans and pay your financier.
  
  
• Statutory Charges
• These are charges like stamp duty, sales tax, etc.  which are imposed by the government.
  
  
• State and Federal Tax Rates
• Your state and federal marginal income tax rates.  These rates are used to determine the tax savings associated with a home equity loan. 
  
  
• Stipulations (STIPS)
• Documentation may be required to prove items on your initial credit application. 
  
  
• T
  
  
• Tax
• Based upon the cost of the vehicle.  Contributed to the government for continuation of services.  Amount varies from state to state.  Some states also place additional taxes on certain types of vehicles.  i.e.  Luxury tax for cars over a set value, "Gas Guzzler" tax for larger vehicles and SUV's.
  
  
• Taxable Fees
• Any additional fee that is subject to sales tax.  This usually includes title transfer fees or any other fees that may be due at delivery and are taxable. 
  
  
• Telephone Bill
• Some lenders require proof of home phone service.  Many lenders are now accepting cell phone service as well. 
  
  
• Term
• For a loan this is the period of time between the beginning of the loan and the end date, at which time the balance of the loan would be due.
  
  
• Term in Months
• Term in months for your lease or your loan. 
  
  
• Termination Fee
• Another wasted fee.  I still don't know why they need to charge this fee at the end, especially if they are already charging a disposition fee to "clean up the car" afterwards.  Negotiate this toxic waste off the contract.
  
  
• Title
• A legal document that proves an individual’s ownership of property.
  
  
• Title Insurance
• Usually issued by a Title Insurance company, protects a homeowner from errors made during a title search.  Determined by the value of the property being sold, the cost may be shared between the purchaser and the seller.
  
  
• Title Search
• Best performed by a title company, this is thorough examination of municipal and public records to determine legal ownership of property.
  
  
• Total Savings
• Total amount you would save in interest if you made the accelerated payment until your contract was paid in full. 
  
  
• Total Purchase Price (before tax)
• This is the total cost of your vehicle purchase.  Include the sale price, any additional options and any destination charges.  Don't include sales tax in this amount.  Sales tax will be calculated for you and included in your total after tax price. 
  
  
• Trade Allowance
• The total amount that you are given for any automobile that you trade-in as part of the purchase.  In some states a trade-in can also reduce the amount of sales tax you will owe.  See the definition for "Sales tax deduction for trade-in" for more information on trade-in vehicles and sales tax. 
  
  
• Trade Equity
• The difference between the value of your trade and the lenders lien payoff. 
  
  
• Trade-In
• A vehicle that is signed over to a car dealership in order to help cover the cost of the initial vehicle purchase.
  
  
• Trade in Value
• The price a dealer will pay you when you look to reduce the price of a new car purchase by trading-in your old vehicle. 
  
  
• Transfer Of Car
• When a used car is bought or sold, the ownership of the car has to be transferred from the seller to the buyer.
  
  
• Trustee
• A person whom is legally entrusted with property for the benefit of another individual or individuals.  Additionally to place a debtor’s wages, credits, or property in the hands of a third party, in the interest of the creditor.
  
  
• U
  
  
• Unapplied for Credit
• Items that you did not initiate a request for credit.  These items only show up on your credit report if you don't pay them.  Example include utility and medical bills, bad checks, and collection agency accounts. 
  
  
• Upside-Down
• The difference between the lien payoff and the value of your trade.  This is a Negative Number
  
  
• Used Car Rule

• The Federal Trade Commission's (FTC) Used Car Rule requires dealers to post a Buyers Guide in every used car they offer for sale.  The Buyers Guide must tell you:

  
  
• Whether the vehicle is being sold "as is" or with a warranty.
• What percentage of the repair costs a dealer will pay under the warranty.
• That spoken promises are difficult to enforce.
• To get all promises in writing.
• To keep the Buyers Guide for reference after the sale.
• The major mechanical and electrical systems on the car, including some of the major problems you should look out for.
• To ask to have the car inspected by an independent mechanic before you buy.
  
  
• V
  
  
• Variable Rate Financing
• With a variable financing rate, the annual percentage range and the amount you pay may change over the life of the contract.
  
  
• Verification of Employment
• Written verification of your employment.  Sent by your current employer, this may include your salary information, and your job description.
  
  
• VIN
• Otherwise known as the Vehicle Identification Number.  Used to keep records of a car.  Similar to a social security number, but for cars rather than people.
  
  
• W
  
  
• Warranty
• A guarantee of a car's performance by the dealer or manufacturer.  A warranty will cover certain costs and repairs for a specific time frame or amount of mileage.
  
  
• Write Off
• Items that the original creditor has given up on trying to collect.  Often these Write Offs will show up twice on a credit report, once from the original creditor as Applied for Credit, and once from a collection agency as Unapplied for Credit. 
  
  
• X
  
  
• Y
  
  
• Z
  
  

If you noticed a term that we missed, or if you have anything to add to any of the descriptions, please email CarCashFinder.com by visiting our Contacts page.