The Ultimate Guide to Auto Loan Speak

A Car Buyer’s Glossary That you can Actually Understand!

Accrue – the accumulation of interest on your car loan.

Add-ons – Extra options that can be added to your model of new car – air conditioning, audio systems and etc.

Adverse action – When a loan applicant is denied credit, a document called an adverse action notice will arrive in the mail explaining the reason for credit denial

Amortization – The length of the loan term that is measured in loan payments and interest.

Amortization term – or amortization length, refers to the length of time that it will take, in months, to pay off the loan and interest.

Amount – refers to the amount of credit the lender has agreed to credit you.

Annual Percentage Rate – also called APR, refers to the interest rate over a one year period.

Application for loan – This is the application that you will fill out with your personal and financial information when you apply for a car loan.

Assets – Your personal assets refer to your personal value. Assets can include real estate, property, jewelry, bank accounts and investments.

Auto test drive – Dealerships will allow potential buyers to test drive the vehicle to see how they like the look, feel and performance of the vehicle.

Backdoor Rebates – Refers to the additional cash back rebates that car dealers receive from the manufacturer for making a sale. You will rarely ever see a dealer take this off the sticker price of the car.

Backend – All of the “extras” that a car dealer tacks on the final ticket price after the sale. The backend can include things like gas charges, extended warranties, financing, insurance and etc.

Bankruptcy – The agreement to surrender your personal assets to a court trustee to pay off your debts.

Base price – or the manufacturers suggested retail price (M.S.R.P.) refers to the cost of that new car on the factory invoice – before the dealer adds extras and options.

Before-tax income – Your gross income for the year - before tax is deducted.

Beneficiary – The trustee you designate to receive your personal assets in the event of your death.

Book value – is known as the “little black book” of appraised car values. If you want to know the trade-in value of your car, you can consult the Black Book, Kelley Blue Book, or NADA Guides for its appraised value or market value.

Borrower – Any person who is fronted credit by a lender. The borrower will sign a borrower’s agreement or loan agreement, which indicates their repayment schedule, interest rate and loan term (length) set by the lender.

Breach of contract – if you default on your borrower’s agreement you will be found in breach of contract. Missing loan payments is one way you can be found in breach of contract. It will negatively impact your credit score and hopes of future credit.

Broker – A car loan broker operates similarly to a mortgage broker, as they work with various lending companies to find you the best interest rate and loan term. A broker is typically paid by the lender when they commission them borrowing clients.

Buyer – The purchaser of the vehicle is known as the buyer on the loan agreement. If a buyer signs a loan agreement they are taking responsibility for the balance of the loan credited to them with interest.

Cash price – or the sticker price of the vehicle.

Certificate of title – or the vehicle ownership is a government issued document that indicates who owns and is responsible for the vehicle.

Co-buyer – is a reference used when a car is purchased jointly. This is similar to a co-signer who will claim joint responsibility for the repayment of a loan should the buyer be unable to make payments.

Co-owner - is the joint owner of an automobile.

Co-signer – see co-buyer. The co-signer is responsible to make payments on a car loan should the borrower be unable to fulfill his end of the loan agreement.

Collateral – Any personal assets such as property, real estate, investments or valuables put up as a guarantee of loan repayment. If a person puts up collateral and is unable to repay the loan in full, the lender will take the collateral as repayment.

Collection – or collection agency is the organization that files warnings and notices when a loan is not paid as per the borrower’s agreement. If a loan is defaulted (payments are missed), the collection agency will step in and foreclose on the car loan. Typically they will repossess your vehicle as payment.

Collision coverage – also known as collision insurance, covers you financially if your car is involved in an accident. Your collision insurance covers any damage to your car and any other vehicle involved in the accident if you are found at fault.

Comprehensive coverage – also known as comprehensive insurance, pays for damages to your car in the case of theft, vandalism or damage resulting from freak weather.

Consumer reporting bureau – Lenders commission the consumer reporting bureau for a copy of your credit history. There are three major consumer reporting bureaus - Equifax, Experian, and TransUnion.

Credit – Money fronted by a creditor to a borrower in the form of a loan or credit limit on a credit card. The borrower promises to repay the credit by a certain date (loan term) with interest.

Creditor – a lender or company who fronts credit to borrowers.

Credit disability insurance – in the unfortunate situation that you become medically unable to repay the balance on your loan agreement, credit disability insurance will make your payments for you if you have a policy for it.

Credit history – refers to a record of your personal credit. It will tell a potential lender if you are responsible with credit or not. Your credit history is based on your repayment behavior with any other loans, credit cards or auto financing that you have secured in the past.

Debt – the amount with interest owed to a lender by a borrower.

Department of Motor Vehicles – or the DMV is the state governing body in charge of licensing and registering cars for road driving.

Extended warranty – an agreement between the dealership and the buyer that the dealership will cover specific mechanical problems with the vehicle for an extended period of time – after the manufacturer’s warranty expires.

Factory invoice – If you want to know the actual purchase price of a vehicle according to the manufacturer you should get a hold of a factory invoice. The car dealer will tack on backend items to inflate this price as much as possible.

Franchised dealership – is authorized by a certain manufacturer to carry and sell their autos and parts.

Front-loaded car loan – The borrower agrees to pay back the bulk of the interest on the loan right away.

Holdback – The reward or incentive that the manufacturer pays car dealers for selling cars within a 3 month time period.

Inspection – the mechanical inspection of a vehicle to determine road-worthiness and value.

Lemon law – state law that protects car buyers against car dealers that sell them automobiles that are not road-worthy.

Manufacturer – the company who engineered and built your car. Top North American auto manufacturers are Dodge, Ford, General Motors and Chevrolet.

Manufacturer's Suggested Retail Price – or the M.S.R.P, is the price that appears on the factory invoice. It’s the car without the inflated ticket price due to all of the extra backend items – extended warranties, upgrades and etc.

Options – add-ons or extras that are available for your make and model, for example – tinted windows, audio systems, sunroof, air conditioning and etc.

Pre-payment fee – It’s strange that you would be penalized for paying a loan off before the term is up, but lenders actually make their money off of your interest. That’s why they sometimes charge a pre-payment fee if you pay off the car loan early, so be sure to read the fine print on your borrower’s agreement.

Principal – the amount of your loan including the interest.

Rebate – are given to buyers to entice them into purchasing last year’s model or slow selling vehicles.

Term – the total length in months of your car loan.

Title – your proof of car ownership or possession.

Trade-in allowance – If you trade-in your old vehicle the dealer will take the trade-in allowance off the sticker price of the new vehicle.

Underwriting – is the approval process for your insurance policy or car loan application.

Upside-down loan – When the outstanding balance on your car loan is worth more than the car. This sometimes happens with lengthy car loans that are 3 to 5 years in length.

Usury limit – the maximum interest rate that can be placed on an auto loan.

Vehicle identification number – also referred to as your car’s VIN, consists of 17 numbers. The VIN serial number can be found on your dashboard to identify your car from others of the same make, year and model.

Warranty – a promise to cover specific mechanical problems by the dealer to the buyer. The warranty will only last a specific amount of miles or length of time.

Wholesale car value – the wholesale price that the dealership paid for your car. This price will be inflated in order for the dealership to make a profit off the sale of the car.