A

Annual Percentage Rate - The actual interest rate the borrower pays when all the costs of obtaining credit are included.

Application - A form used by a borrower to submit pertinent financial and property information concerning a borrower/mortgagor and the proposed security.

Asset - Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

B

Book Value - The value of a used auto in a specific market area. A recognized wholesale appraisal guidebook provides guidance on the auto's value at any given time. Examples of these guidebooks include Black Book, Kelley Blue Book, or NADA Guides.

C

Co-Signer - See Guarantor.

Collateral - An asset (such as an auto) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Credit - An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Creditor - A person or institution who extends credit and to whom the obligation is payable.

Credit Bureau - An organization that gathers consumer credit information. There are three major credit bureaus: Equifax, Experian, and TransUnion.

Credit Disability Insurance - An insurance policy that provides protection to the borrower in the event the borrower becomes medically disabled and is not capable of making their loan payment. The insurance company will make payments on a monthly basis according to the terms of the policy.

Credit History - A record of an individual's open fully repaid and unpaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance - An insurance policy that may be purchased by the borrower to provide protection in the event of death. The insurance company may pay off the account according to the terms of the policy. This protects the borrower's estate from the liability of the debt.

Credit Report - A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Score - A numeric assessment used to evaluate the amount of "risk" involved in a credit transaction. It involves the evaluation of credit quality based on the information provided in the consumer's application, the proposed loan structure and the consumer's credit report.

Creditworthiness - Determination of a consumer's eligibility to borrow money. This information is based on the number of accounts opened, the types of accounts, payment history and account balances.

D

Dealer Invoice - The amount the dealer pays the manufacturer for an auto.

Dealer Sticker Price - The total price of the auto. Dealer sticker price is also known as sticker price, or MSRP.

Debt - An amount owed to another.

Default - Failure to comply with the terms of a loan contract. If a borrower defaults on a loan, the lender may seize the collateral, liquidate (sell) it, and apply proceeds to the loan balance.

Delinquent - The failure to make a loan payment on time.

Department of Motor Vehicles (DMV) - A state agency that oversees the process of registering, titling and licensing autos for a particular state. The Department of Motor Vehicles is also referred to as the Department of Transportation.

Department of Transportation - Refer to Department of Motor Vehicles.

Depreciation - A decline in the value of an auto (property) over time.

Destination Charge - The price added into the dealer invoice for moving the auto from the manufacturer to the dealer.

Down Payment - The part of the purchase price that the buyer pays in cash and does not finance with a loan.

Due Date - The date in a given month that a loan payment is due.

Duplicate Title - The request by an applicant to reissue a Certificate of Title when the original has been lost or destroyed.

E

Electronic Funds Transfer (EFT) - A process that allows either the lender or the borrower to transfer funds or payments electronically between respective bank accounts.

Equal Credit Opportunity Act (ECOA) - A federal law that requires lenders and other 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.

Extended Warranty - A contract that covers specified breakdowns after a manufacturer's warranty expires. Manufacturers and independent companies sell extended warranties.

F

Fair Credit Reporting Act - A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair Market Value - The amount that a willing buyer would pay at a given point in time for the auto (property) in a realistic transaction.

Finance Charge - The cost of consumer credit expressed as a dollar amount.

G

Gross Income - Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Guaranteed Automobile Protection (GAP) - A product that pays any remaining balance owed on a loan after payment of a total loss insurance claim.

Guarantor - An individual who agrees to pay the amount due (payment) and to perform all the agreements stated on the contract if the buyer fails to meet contractual obligations.

I

Installment Plan - A method of buying an auto (property) on credit and making payments at regular intervals for a specific period of time.

Insurance - The assumption of risk of another party's financial loss.

Insurance Premium - The payment made to an insurance company to cover the cost of insurance.

Interest - The cost of borrowing money, usually stated in terms of a percentage.

Interest Rate - The interest rate is a part of the annual percentage rate (APR) equation. Interest is the annual rate of return that the lender receives on the Principal of the loan.

Invoice Price - Refer to Dealer Invoice.

K

Kelley Blue Book - Refer to Book Value.

L

Late Fee - A charge assessed by a lender for payments received after a specific due date.

Lemon Law - A blanket term used to refer to various state laws that protect consumers against the purchase of an auto found to be persistently defective.

Lender - The individual or organization that lends funds to a borrower with the understanding that those funds will be repaid, with interest, based on a clearly defined schedule. It can be a bank, credit union, or finance broker offering or referring the loan.

Liability Insurance - Protection for the policyholder, up to an agreed amount, for sums payable to another for personal (bodily) injury or property damage.

Lien - A security interest in property, such as an auto, to secure the payment of an obligation.

Lien Holder - The individual or company holding a security interest in collateral to ensure repayment of a loan.

Lien Perfection - The process of ensuring that the lien holder is correctly identified on the title.

Loan - Money lent to a consumer to be repaid over a period of time.

Loan Balance - The amount owed on a loan after deducting the amount of payments made.

Loan Contract - The written agreement between a borrower and a lender that identifies the terms of the loan.

Loan Term - This is the length of the loan, usually broken down into months (24, 36, etc.). While it is true that the longer the "Loan Term", the lower the monthly payment; increasing the length of the loan to lower the monthly payment should be done with a great deal of caution as the total amount repaid will be higher due to interest accrued. It is calculated by dividing the sales price or appraised value of an auto by the loan amount.

Loan-to-Value Ratio (LTV) - A ratio used to determine the amount of money a lender will loan based on the value of the auto. It is calculated by dividing the loan amount by the Retail Value.

M

Manufacturer - The original producer of an auto. A few examples include Ford, Chevrolet, Honda, BMW, or Dodge.

Manufacturer's Rebate - Refer to Rebate.

Manufacturer's Suggested Retail Price (MSRP) - The auto sales price suggested by the manufacturer.

Maturity Date - The date on which the balance of the loan becomes due and payable.

Monthly Payment - The amount of principal and interest the borrower is obligated to pay each month.

O

Obligation - The legal responsibility of a borrower to repay a loan.

Options - Features that are added to a base model. For automobiles, examples include a sunroof, standard or automatic transmission, and bucket seats. Options are also referred to as add-ons.

P

Principal - The amount of the auto loan without the interest factored in. In other words, the amount you are financing and will be paying interest on.

Principal Balance - The unpaid balance (remainder) of a loan.

Promise to Pay - The agreement by the borrower to repay the current payment amount and date to be paid.

Q

Qualify - The ability to meet a lender's criteria for granting credit.

Quote - A price that represents the cost of a specific item, such as a loan rate, service contract, price of an insurance policy and so on.

R

Rebate - A manufacturer's reduction to the price of an auto, which serves as an incentive to buyers. May also be referred to as a manufacturer's rebate or customer incentive.

Regulation Z - A regulation that implements the Truth-In-Lending Act. It applies to all lenders and requires disclosure of credit terms.

Retail Blue Book Value - The value of a used auto in a specific market area. See Book Value.

Retail Price - The amount the buyer pays the seller for an auto.

S

Secured Loan - A loan that is secured by collateral.

Security - Assets or personal property pledged as collateral to secure a loan.

Simple Interest - A method of calculating interest due by applying a periodic rate to the outstanding balance on a daily basis. As payments are received they are applied first to the accrued interest and then to the principal amount.

T

Tax - A percentage of the final sales price that is required to be paid to local, state, and/or federal government entities.

Title - The evidence one has of right to possession. See Certificate of Title.

Trade-In - An auto exchanged for a credit amount on the purchase of a new (auto) item.

Trade-In Allowance - A credit amount given to a customer upon purchase of a new auto, in exchange for their old auto (property). This credit amount may reduce the cash price of the new purchase.

Truth-In-Lending Act - A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

V

Vehicle Identification Number (VIN) - An individual serial number assigned by the manufacturer to a motor vehicle. The alphanumeric number consists of seventeen (17) digits is located on the auto's dashboard and visible through the windshield.

Vehicle Service Contract - Insures your vehicle from a variety of repairs and unexpected problems including engine system repairs, transmission and transfer case repairs, towing and electrical system repairs.

W

Wholesale Book Value - The amount the dealership usually pays for a used auto in markets other than retail, typically auctions and broker transactions.