Loan Glossary

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Amortization
The repayment of a loan by installments with regular payments to cover the principal and interest.
Amount Financed
The amount of credit provided by a lender.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) is a yearly rate of interest that includes all of the fees and expenses paid to acquire the loan.
Application
An initial written statement of personal and financial information required for an evaluation of creditworthiness.
Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
Base Price
The cost of an auto before a franchised dealer adds options. Includes the standard equipment and the manufacturer's warranty.
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.
Borrower
The individual that obtains credit from a lender with the understanding that it will be repaid, with interest, within a clearly defined schedule.
Breach of Contract
A violation of any legal obligation.
Buyer
An individual who purchases an auto. This individual is primarily liable for repayment of the loan and has ownership rights in the property purchased.
Cash Price
The price at which a seller offers to sell the property or service that is the subject of the transaction.
Certificate of Title
A document issued by a state to provide evidence of motor vehicle ownership and any lien holder's security interest.
Clear Title
A title that is free of liens or legal questions as to ownership of the property.
Co-Signer
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.
Collection
The efforts used to bring a delinquent account current and to file the necessary notices to proceed with foreclosure when necessary.
Collision Insurance
Insurance that provides coverage against the loss or damage to property arising out of the ownership or use of property. Collision coverage would cover any loss associated with a collision.
Consumer Credit
Credit offered or extended to a consumer primarily for personal, family or household purposes.
Consumer Reporting Agency (or Bureau)
An organization that prepares reports used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository, as well as from other sources.
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.
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.
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.
Down Payment
The part of the purchase price that the buyer pays in cash and does not finance with a loan.
Effective 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.
Endorser
A person who signs ownership interest over to another party.
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.
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.
Finance Company
An institution that finances purchases repayable in installments.
Fixed Rate Loan
A loan in which the interest rate remains constant throughout the life of a loan.
Ganteed Automobile Protection (GAP)
A product that pays any remaining balance owed on a loan after payment of a total loss insurance claim.
Guarantor
One who agrees to pay the debt of another.
Indirect Financing
A loan that is originated by a dealership and subsequently assigned to a financial institution.
Inspection
The mechanical and physical evaluation of an auto.
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.
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 Holder
The individual or company holding a security interest in collateral to ensure repayment of a loan.
Loan
Money lent to a consumer to be repaid over a period of time.
Loan Contract
The written agreement between a borrower and a lender that identifies the terms of the loan.
Manufacturer's Suggested Retail Price (MSRP)
The auto sales price suggested by the manufacturer.
Monthly Payment
The amount of principal and interest the borrower is obligated to pay each month.
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.
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.
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.
Retail Blue Book Value
The value of a used auto in a specific market area.
Retail Price
The amount the buyer pays the seller for an auto.
Secured Loan
A loan that is secured by collateral.
Service Contract
These are contracts that provide financial coverage to repair or replace any failure or breakdown within the limits of the policy.
Tax
A percentage of the final sales price that is required to be paid to local, state, and/or federal government entities.
Term
The period of time which covers the life of the loan. For example, a 3 year fixed loan has a term of 3 years or 36 months.
Title
The evidence one has of right to possession. See Certificate of Title.
Total Sales Price
The total price of a credit purchase including any down payment equal to the total of payments plus any down payment.
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.
Usury Law
A law that sets the maximum interest rate that can be charged on a loan.
Usury Limit
The maximum interest rate allowed by law in a given state.
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.
Warranty
A guarantee from the dealer or manufacturer that an auto (item) will perform as expected or specified. Warranties usually cover specific mechanical problems for a specific number of miles or amount of time.