Auto Loans Glossary
Addons: Products or services sold by dealerships that can be added on to the vehicle. Some examples include rust-proofing, upholstery treatments, alarm systems, and extended warranties. Remember that these add-ons will increase the price of the vehicle, and your monthly payment. Also these items are normally marked up outrageously. Also referred to as snake oil by dealers,because it bites you.
Amortization The reduction of debt by regular payments of principal and interest over a period of time.
APR Annual Percentage Rate. A way of expressing the cost of credit on a loan. Under federal law, all consumer loans must disclose the Annual Percentage Rate.
Application The information you provide to us to see if we can offer you a loan.
Balance The balance on a loan account is the amount remaining to be paid back.
Balloon Payment A large payment due at the end of a loan. Using a balloon payment, the individual monthly payments can be smaller.
Base Price The cost of a car without options. Also called the "sticker price" or "MSRP."
Bill of Sale A document that shows the details of a sale. Your dealership will prepare a bill of sale to document your purchase.
Blue Book A publication of Kelley Blue Book, Inc. and one of several standard references used to determine the value of used vehicles. The value is sometimes called the "Blue Book Value." Blue books typically show a wholesale value and a retail value for each vehicle.
Captive Finance Company A separate company owned by an auto manufacturer to finance product sales. Examples include General Motors Acceptance Corporation (GMAC) and Ford Motor Credit Corporation (FMCC).
Collateral Property that you pledge to give up if you default on a loan. Your vehicle is the collateral for your auto loan.
Compound Interest An interest method that calculates interest on interest earned in prior periods.
Customer Incentive A special payment from the manufacturer to the customer to promote sales of slow-selling models. Also called a "Rebate".
Dealer Holdback An allowance paid by the manufacturer to the dealer to allow the dealer to purchase a vehicle for less than the invoice price.
Dealer Incentive A special payment from the manufacturer to the dealer to help the dealer sell slow-selling models.
Dealership  A company authorized by a manufacturer to sell that manufacturer's products.
Depreciation  A reduction in the value of an asset. Most cars begin to depreciate the moment they are sold. Some vehicles depreciate much faster than others.
Destination Charge The fee charged by the manufacturer to ship the vehicle to the dealership. This fee is passed on to the customer, and is included on the sticker.
Down Payment Money you pay at the time of the purchase to reduce the amount that will be financed.
Gas Guzzler Tax >A tax on vehicles that get poor gas mileage.
Grace Period The period of time after the due date that's allowed before a penalty is charged.
Invoice Price The price the dealer pays to buy a car from the manufacturer, exclusive of hold backs or other discounts.Very seldom is the bottom line of the cost to dealers.
Lease A form of financing in which you can use a vehicle for a period of time in exchange for making payments to the leasing company. In a lease, the leasing company continues to own the vehicle.
Lien The finance company's security interest in your vehicle.
List Price The manufacturer's suggested retail price for a vehicle. Also called "MSRP" or "Sticker Price."
Mark-up The difference between the invoice price and the price the dealer sells the car for.
Monroney Sticker The price sticker required by federal law for all new vehicles. The Monroney Sticker lists all the vehicle's options along with the manufacturer's suggested retail price (MSRP).
MSRP Manufacturer's Suggested Retail Price. The price the manufacturer recommends for a vehicle. Also called "List Price" or "Sticker Price."
Pink Slip A vehicle's title certificate.
Rebate A special payment from the manufacturer to the customer to promote sales of slow-selling models. Also called a "Customer Incentive".
Snake Oil Products or services sold by dealerships that can be added on to the vehicle. Some examples include rust-proofing, upholstery treatments, alarm systems, and extended warranties. Remember that these add-ons will increase the price of the vehicle, and your monthly payment. Also these items are normally marked up outrageously. Also referred to as snake oil by dealers,because it bites you.
Sticker Price The manufacturer's suggested retail price for a vehicle. Also called "List Price" or "MSRP."
Title A certificate issued by the state department of motor vehicles that proves ownership of a vehicle. Sometimes called a "pink slip."
Trade-in Value The value of a used vehicle that you trade in to a dealership as part of a purchase.
Upside-down Describes a situation where the balance owed on a loan is greater than the current value of a vehicle.