Learn how to avoid getting Bad Credit so you can get the best car loan.
APRThe "Annual Percentage Rate" is a yearly rate of interest that includes fees and costs paid to acquire the car loan. Lenders are required by law to disclose the APR, and the rate is used to compare various car loans available, making even simple interest and compound interest loans comparable.
Absolute Low (floor price)
The lowest price a seller is willing to take for a vehicle
Acceleration Clause
This allows a lender to speed up a car loan rate if there is a default on the car loan.
Accessories
The added features that is available for a new car.
Accrued Interest
Interest that increases on an unpaid balance of a car loan.
Acquisition Fee
A fee included in most lease transactions that is either paid for up-front or included in the total cost of the vehicle. This fee covers a number of administrative costs, such as obtaining a credit report, verifying insurance coverage, etc.
Adjusted Capitalized Cost (Adjusted Cap Cost)
The amount capitalized at the beginning of the lease, equal to the gross capitalized cost minus the capitalized cost reduction. This amount is sometimes referred to as the net cap cost
Advertising Fee
The car dealer will pass this fee on to the buyer for advertising costs.
Agreement of Sale
Also referred to as sales or purchase agreement. It states that the seller is selling and the buyer is buying.
Amortization
Payment of a loan obligation in a series of installments or transfers.
Application
An initial statement of personal and financial information required to approve your loan.
Appraisal
An opinion of the market value of an asset as of a specific date.
Appraisal Fee
The fee to estimate any property or possession.
Asset
Tangible items (possessions or property) to secure a debt.
Assignment
Any transfer of your loan from one lender to another lender.
Auction
The sale process by which multiple bidders compete to purchase a vehicle that is finally sold to the individual offering the highest price.
Balloon Note
At the end of the loan term, some of or the entire original loan amount is due and payable.
Bankruptcy
A debtor that, upon voluntary petition or one invoked by the debtor's creditors is judged legally insolvent. The debtor's remaining property is then administered for the creditors or is distributed among them.
Base Price
The cost of a car without options, but including standard equipment, factory warranty, and freight. This price is printed on the Monroney sticker.
Bid
The amount of money offered for a vehicle in the sale.
Billing Error
The Federal Fair Credit Billing Act defines this as any mistake on your statement.
Bill of Sale
A document provided by a seller showing the name of the purchaser and purchase price, which is also used to calculate sales and other taxes
Black Book
A biweekly guidebook on used car prices that summarizes the most recent wholesale prices directly from auctions. Values often are “extra clean, clean, average or rough”; adjustments can be made for mileage, trim level, and optional equipment.
Borrowing
To obtain or receive something on loan with the promise or understanding of returning it or its equivalent.
Broker
Someone who helps negotiates or arranges but does not make the loan.
Business Days
Holidays and weekends are not usually considered a business day.
Buyers Guide
The Federal Trade Commission requires auto dealers to show a Buyers Guide for each used cars they sell.
Buyers Order
The contract between a buyer and seller.
Buy-Here, Pay-Here (BHPH)
Dealer-provided financing to customers who are unable to obtain credit. BHPH dealers sell mechanically sound, affordable vehicles for which customers generally return to the dealership weekly or monthly to pay off the dealer-provided credit for their car.
Capitalized Cost
The total amount of value for the car upon which a lease is based, similar to the selling price of an automobile you purchase.
Capitalized Cost Reduction
The amount paid in cash or trade-in at the inception of a lease, similar to a down payment.
Captive Finance Company
A leasing or finance company that is associated with a vehicle manufacturer.
Certificate of Origin
A document that conveys the title of vehicle from the manufacturer to the dealer.
Certificate of Title
A legal document issued by the state showing the owner’s name and the vehicle’s mileage at the time of sale.
Closed-End Lease
A lease in which the lessee is not responsible for any difference between the actual and estimated residual value at the time of lease maturity. The lessee’s only extra obligations under a closed-end lease might be mileage or wear and tear exceeding the lease contract provisions.
Cloud On Title
A claim that negatively affects an outstanding title.
Co-Buyer
A Co-Buyer’s (Spouse) income is counted toward the buyer’s income.
Collateral
Property or possessions used to support a loan that in default of your loan payment can be seized.
Collision Insurance
In the event of damage to your car this insurance pays for repairs.
Commitment
A legal binding agreement between a lender and a borrower.
Compound Interest
Interest paid on the principal and it’s accrued interest.
Comprehensive Insurance
This insurance covers damages from theft, vandalism or other natural causes (weather).
Co-Signer
This person assumes equal responsibility for the loan if the borrower does not pay.
Credit
Reputation for solvency and integrity entitling a person to be trusted in buying or borrowing.
Creditor
A lender who is owned money.
Creditworthiness
The ability to repay loans or debts in the past or future.
Credit Bureau
A firm that provides credit and personal information to creditors.
Credit History
A document that shows borrowing and repayment of debts.
Credit Profile
The report showing your history of money borrowed and other financial obligations.
Credit Report
A credit document that shows credit or loan account, balances, employment and financial transactions.
Credit Scoring
Banks and lending institutions use different scoring systems to decide your creditworthiness.
Dealer
An individual licensed by the state to conduct the sale and purchase of new or used vehicles.
Dealer Charges
These charges are for options offered by the dealer.
Dealer Incentives
Auto manufacturers offer programs to dealers to increase sales.
Dealer Invoice
The purchase price of the vehicle that the dealer is required to pay the manufacturer.
Dealer Sticker Price
Sticker price or MSRP is the total price of the vehicle.
Debt Ratio
Your earnings compared to how much you owe.
Deed
A document sealed as an instrument of bond, contract, or conveyance, especially relating to property.
Default
Failure to meet the repayment or other terms of your loan.
Delinquency
Failure to make payments by the date the payment is due.
Depreciation
The value lost as the vehicle ages. During the early years of the vehicle’s life depreciation is usually rapid and can be greater or less than the average because of mileage and wear and tear.
Destination Charge
Shipping charges of the car that is passed on to the buyer.
Disclosure Statement
The total amount of the loan; the loan amount, interest and other financial charges.
Down Payment
The difference between the loan amount and the purchase price; usually paid immediately upon purchase in the form of cash or trade-in value.
Equity
The positive difference between the trade-in or market value of a vehicle and the loan payoff amount, in an installment sale of loan. The equity is the market value of the vehicle when the loan is paid off.
Escrow
The residual value of a business or property beyond any mortgage thereon and liability therein.
Excess Mileage Charge
A charge by the lessor for miles driven in excess of the maximum specified in the lease agreement. The excess mileage charge is usually between $0.10 and $0.25 per mile. For example, a lease specifies a maximum of 36,000 miles and a charge of $0.15 per mile over the maximum. If the lessee drives 37,000 miles, the excess mileage charge will be $0.15 x 1,000, or $150.
Excess Wear and Tear Charge
Amount charged by a lessor to cover wear and tear on a leased vehicle beyond what is considered normal. The charge may cover both interior and exterior damage, such as upholstery stains, body dents and scrapes, and tire wear beyond the limits stated in the lease agreement.
Fair Market Value
The current value of a particular vehicle in the marketplace, based on mileage, exterior and interior condition, mechanical fitness, etc.
Financing
The management of money, banking, investments, and credit.
Foreclosure
A legal proceeding that bars or extinguishes a mortgagor's right of redeeming a mortgaged estate.
Franchised Dealer
A licensed vehicle dealer authorized to sell and service a specific brand of new vehicles.
Gap Protection
A type of insurance covering the amount owed due to early termination of a lease agreement that is not covered by auto insurance. Involuntary early termination of a lease may occur when a car is stolen or significantly damaged in an accident. The actual cash value of the car paid by auto insurance may not be adequate to pay the lease payoff balance and early-termination penalties.
Gross Income
For qualifying purposes, the income of the borrower before taxes or expenses are deducted.
Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.
Incentives
A form of reward offered to boost sales; a special price reduction or rebate from vehicle manufacturers to influence the sale of a particular model. Incentives can be low to zero percent.
Independent Dealer
A used vehicle dealer who is not associated with a manufacturer.
Insurance
Coverage by a contract binding a party to indemnify another against specified loss in return for premiums paid. Interest: A charge for a loan, usually a percentage of the amount loaned.
Interest Rate
The percentage of a sum of money charged for its use.
Kelley Blue Book
A publication that lists retail prices and retail trade-in values of used vehicles.
Lending
To provide money temporarily on condition that the amount borrowed be returned, usually with an interest fee.
Lease
A contract between a lessor and a lessee for the use of a vehicle or other property, subject to stated terms and limitations, for a specified period and at a specified payment.
Lessee
The company or individual to whom a vehicle is leased.
Lessor
The party to a lease agreement who holds legal or tax title to the vehicle and receives the lease payments.
Lien
The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.
Loan
That which one lends or borrows, especially a sum of money lent at interest.
Lock or Lock In
A commitment obtained from a lender assuring a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the loan application, loan approval, and closure and receipt of the borrowed funds.
Manufacturer's Rebate
A program offered directly to the buyer by manufacturers to increase the sales of slow-selling models or to reduce excess inventories.
Manufacturer’s Suggested Retail Price (MSRP)
The suggested retail price listed on the Moroney label. Also referred to as the “sticker price.”
Money Factor
A percentage representing the cost of the money required to lease a vehicle, similar to the interest rate paid on a loan.
Moroney Sticker Price
Required by federal law, the price which appears on a label affixed to the car window showing the base price, the manufacturer's installed options with the manufacturer's suggested retail price, the manufacturer's freight or transportation charge, and the fuel economy (mileage). The label may not be removed by anyone other than the purchaser.
Mortgage
A temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt.
Mortgagee
One that holds a mortgage.
Mortgagor
One that mortgages property.
National Independent Automobile Dealers Association (NIADA)
Formed in 1946 to represent independent automobile dealers nationwide, the organization provides its 16,000 members with solutions to help them operate businesses that are more successful.
Open-End Lease
a lease where no specific time limit is set for the vehicle to remain in service. In most cases, at the end of the lease, any gain or loss from the sale of the vehicle belongs to the lessee.
Private Transaction
When one consumer sells a vehicle to another consumer without the interaction of a car dealer.
Refinance
To provide new financing for, as by discharging a mortgage with the proceeds from a new mortgage obtained at a lower interest rate.
Repossession
To reclaim possession of for failure to pay installments due.
Residual Value
The amount agreed upon to represent the value of the car at the termination of a lease, usually determined by the amount of depreciation in the car's value predicted during the term of the lease.
Retail Price
The price paid by a consumer to a dealer or individual for a vehicle. The dealer or individual sets the retail price of a used car by calculating the wholesale price paid plus reconditioning expenses and other costs.
Savings Rate
Your savings rate is used to decide between two options that cost you money at different times. (See Cost Analysis) It is wise when applying to input a reasonable pre-tax average.
SUV
Sport Utility Vehicle
Term
The length of time that a lessee will make payments on a loan. Typical car loans have terms of 24, 36 or 48 months.
Title
A legal document issued by the state showing the owner’s name and the vehicle’s mileage at the time of sale.
Trade-in
A vehicle that is sold to either a new or used car dealer as part of the purchase of another.
Trade-in Value
The amount a dealership credits the buyer for the vehicle provided as partial or full payment for another vehicle. Amount credited is frequently about 5% below the wholesale value of the vehicle.
Underwriting
The process of verifying data and approving a loan.
Upfront Costs
Fees and charges collected at the time of the loan, as opposed to over the life of the loan. May reduce the interest rate paid over the life of the loan.
Upside-down
When the value of a vehicle is lower than the outstanding balance of the loan secured by the vehicle.
Used Car Guidebooks
Publications that report current wholesale and/or retail prices of vehicles. Prices are listed according to year, make, model, options, mileage, and condition of the vehicle. Prices are generally are determined from factors such as auto auction prices, retail sales prices, other wholesale transactions, and regional demand. Major examples are: Automotive Market Report (AMR), Black Book, Kelley Blue Book, and National Automobile Dealers Association (NADA) official Used Car Guide.
Vendor
One that sells or vends.
Waive
To give up a claim or right voluntarily; relinquish.
Wholesaler
A dealer who buys vehicles at auction – or from a dealer or another wholesaler – and resells them in the wholesale market, i.e., to dealers rather than consumers. Wholesalers also buy and sell cars among the dealers with whom they do business.
Yield
The annual rate of return on an investment, expressed as a percentage.
| The following are some useful links on information about Car Loans |
| Car Loan Wiki |
| Wiki Cars |
