One of the most overwhelming tasks of buying that new dream car is
arranging the car loan or auto financing. Knowing the vocabulary and
terms will help you make the right decision on the best loan that is
exactly right for your needs.
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This great glossary of terms comes from AWARE and will help you communicate better when you get to the finance office at the dealership:
Auto Loan Financing Glossary of Terms:
Amount Financed
The dollar amount of the credit that is provided to the buyer.
Agreed-Upon Selling Price
The dollar amount the buyer agrees to pay the dealer for the vehicle
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.
Assignee
The bank, finance company, credit union, or other financial institution
that purchases the finance contract from a dealer.
Bank or Credit Union Financing
(also 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 auto.
Budget
A tool commonly used to measure expenses against income, to help people prioritize their spending and manage their money.
Buy Rate
The wholesale rate offered to a dealership at which the "assignee"
(finance company, bank or credit union) will purchase the contract.
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 some co- buyers are
eventually asked to repay the obligation, individuals need to be sure
that they can afford to do so before agreeing to be a co-buyer.
Collateral
An asset pledged to the creditor until the financing is paid off. For
example: If you own your home, it may be used as collateral to secure
automobile financing.
Credit Application
The information that a buyer submits when applying for credit. It
typically requires such items as 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. This can be done in person, over the phone,
or electronically via the Internet.
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) is optional insurance that 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 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 Reporting Agency
A firm that collects, sorts, maintains, and sells information about an individual’s credit history.
Credit Score
A numerical score that reflects the credit risk you present based on
information contained in your credit file. The better your history of
credit, the higher your score.
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.
Dealer Financing
(also On-Site Financing)
Financing that a consumer obtains from the dealership rather than
directly from a bank, credit union, or other financial institution to
buy a new or used auto. 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.
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.
Delinquent Accounts
Credit accounts that are past due. They usually are classified as 30, 60, 90 and 120 days past due.
Depreciation
The amount by which a vehicle is expected to decrease in value over a specific period of time.
Down Payment
An amount paid at time of purchase that reduces the amount financed.
This includes any combination of cash, trade-in value of a
previously-owned vehicle, rebates, and other non-cash credits.
Extended Service Contract
Optional protection on specified mechanical and electrical components
of the vehicle. It is available for purchase to extend and/or
supplement the warranty coverage provided when purchasing or leasing a
new, or in some cases, a used vehicle.
Finance Charge
The dollar amount that the credit will cost the buyer.
Fixed Rate Financing
An annual percentage rate that remains the same over the life of the finance 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.
Installment Sale
A contract with a dealership to buy a vehicle by paying the amount
financed, plus an agreed upon finance charge, over a certain period of
time in installments, which are typically monthly payments.
Length of Contract
The total number of months the borrower has to pay his or her credit obligation.
Lien
A legal claim on ownership of the vehicle stemming from a debt. If the
buyer does not make the payments, the lienholder can repossess and sell
the vehicle as full or partial payment of the debt.
Off-Site Financing
(also Bank or Credit Union Financing)
The financing a buyer gets a from his or her bank, credit union or
other financial institution to pay for a new or used auto.
On-Site Financing
(also Dealer Financing)
Financing that a consumer obtains from the dealership rather than
directly from a bank, credit union, or other financial institution to
buy a new or used auto 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.
Repossession
In the event that a credit obligation is not satisfied, the legal right a creditor
has to take the asset pledged as collateral (typically the automobile)
and sell it to pay off the credit obligation. Depending on state laws,
this process is typically subject to rights to redeem (pay off the
entire balance and get your vehicle back) or reinstate (pay any
delinquent payments and get your vehicle back to start the contract
again).
Secured Credit
Financing for which some form of acceptable collateral, such as a house or automobile, has been pledged.
Trade-in Allowance: The amount the dealer agrees to pay for a trade-in vehicle, which consumers often apply towards the purchase of a new vehicle.
Unsecured Credit
Credit for which no collateral has been pledged.
Variable Rate Financing
With a variable financing rate, the annual percentage range may change over the life of the contract.
Source: http://www.autofinancing101.org/index.asp
