Auto Loan Definitions

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  • Acceleration Clause

    Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire balance of the loan should you default on you loan.

  • 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.

  • Agreement of Sale

    Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under specific terms spelled out in writing and signed by both parties.

  • Amortization

    Loan payment calculated to pay off the debt at the end of a fixed period, including interest on the outstanding balance.

  • Annual Percentage Rate (APR)

    The cost of credit as a yearly rate. The percentage results from an equation considering the total amount financed, the finance charges, and the term of the loan. Usually not the same as the interest rate.

  • Application

    The information you provide to us to see if we can offer you a loan.

  • Appraisal

    An estimate of the value of property, made by a professional appraiser.

  • Appraisal Fee

    The charge for estimating the value of property.

  • 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.

  • Asset

    Property that can be used to repay debt, such as stocks and bonds or a car.

  • Assumption

    The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt.

  • Automated Teller Machines (ATMs)

    Electronic terminals through which customers may make deposits, withdrawals, or other transactions as they would through a bank teller.

  • 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."

  • Billing Error

    Any mistake in your monthly statement as defined by the Fair Credit Billing Act.

  • Bill of Sale

    A document that shows the details of a sale. Your dealership will prepare a bill of sale to document your purchase.

  • Binder or "Offer to Purchase"

    A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

  • 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.

  • Broker

    An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself.

  • Building Line or Setback

    Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be set by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

  • Business Days

    Find out from your institution to find out what days it counts as business days under the Truth in Lending and Electronic Fund Transfer Acts.

  • Buydown

    When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

  • Caps (Interest)

    Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

  • Caps (Payment)

    Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

  • 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).

  • Certificate of Title

    A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence.

  • Closing

    The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement.

  • Closing Costs

    Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount.

  • Cloud (On Title)

    An outstanding claim which negatively affects the marketability of title.

  • Collateral

    Property offered to support a loan that can be seized if you default.

  • Commission

    Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.

  • Commitment

    An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated conditions.

  • Compound Interest

    An interest method that calculates interest on interest earned in prior periods.

  • Cosigner

    Another person who signs your loan and assumes equal responsibility for it.

  • Credit

    The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.

  • Credit Bureau

    An agency that keeps your credit record.

  • Credit Card

    Any card used from time to time to borrow money or buy goods or services on credit.

  • Credit History

    The record of how you've borrowed and repaid debts.

  • Creditor

    A person or business from whom you borrow or to whom you owe money.

  • Credit Ratio

    The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net income (FHA/VA loans) or gross monthly income (Conventional loans). See Housing Expenses-to-Income Ratio.

  • Credit-related Insurance

    Health, life, or accident insurance designed to pay the outstanding balance of debt.

  • Credit Scoring System

    A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.

  • Creditworthiness

    Past and future ability to repay debts.

  • 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.

  • Debit Card (EFT Card)

    A plastic card, looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers.

  • Default

    Failure to repay a loan or otherwise meet the terms of your credit agreement.

  • Deferred Interest

    See Negative Amortization.

  • Delinquency

    Failure to make payments on time. This can lead to foreclosure.

  • Depreciation

    Decline in value of a vehicle due to wear and tear or any other reason.

  • 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.

  • Disclosures

    Information that must be given to consumers about their financial dealings.

  • Discount Points

    Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).

  • Documentary Stamps

    A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

  • Down Payment

    Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent on FHA and VA loans.

  • Earnest Money

    Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

  • Easement Rights

    A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

  • Elderly Applicant

    As defined in the Equal Credit Opportunity Act, a person 62 or older.

  • Electronic Fund Transfer (EFT) Systems

    A variety of systems and technologies for transferring funds electronically rather than by check.

  • Encumbrance

    A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive convenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

  • Equal Credit Opportunity Act (ECOA)

    Is 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.

  • Equity

    The difference between the fair market value and current indebtedness, also referred to as the owner's interest.

  • Finance Charge

    The total dollar amount credit will cost.

  • Gas Guzzler Tax

    A tax on vehicles that get poor gas mileage.

  • General Warranty Deed

    A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

  • Grace Period

    The period of time after the due date that's allowed before a penalty is charged.

  • Grantee

    That party in the deed who is the buyer or recipient.

  • Grantor

    That party in the deed who is the seller or giver.

  • Gross Monthly Income

    The total amount the borrower earns per month, before any expenses are deducted.

  • Guarantee

    A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

  • Hazard Insurance

    A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

  • Home Equity Line of Credit

    A form of open end credit in which the home serves as collateral.

  • Impound

    That portion of a borrower's monthly payments held by the lender or service to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

  • Index-Term

    A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

  • Interest

    A charge paid for borrowing money.

  • Interest Rate

    The annual rate of interest on the loan, expressed as a percentage of 100.

  • Investor

    Money source for a lender.

  • 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.

  • Joint Account

    A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

  • Late Payment

    A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

  • 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.

  • Lessee

    A person who signs a lease to get temporary use of property.

  • Lessor

    A company that provides temporary use of property usually in return for periodic payment.

  • Liability on an Account

    Legal responsibility to repay debt.

  • Lien

    A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

  • List Price

    The manufacturer's suggested retail price for a vehicle. Also called "MSRP" or "Sticker Price."

  • Loan-To-Value Ratio

    The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

  • Lock Term

    A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.

  • Margin

    The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

  • Marketable Title

    A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

  • Market Value

    The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

  • 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

    Stands for Manufacturer's Suggested Retail Price. It represents the manufacturer's recommended selling price for a vehicle and each of its options.

  • Negative Amortization

    Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

  • Net Effective Income

    The borrower's gross income minus federal income tax.

  • Open-End Credit

    A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.

  • Open-End Lease

    A lease which may involve a balloon payment based on the value of the property when it is returned.

  • Origination Fee

    The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

  • Overdraft Checking

    A line of credit that allows you to write checks or draw funds by means of an EFT card for more than your actual balance, with an interest charge on the overdraft.

  • Pink Slip

    A vehicle's title certificate.

  • PITI

    Principal, interest, taxes, and insurance. Also called monthly housing expense.

  • Plat

    A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

  • Point-of-Sale (POS)

    A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.

  • Points

    See Discount Points.

  • Power of Attorney

    A legal document authorizing one person to act on behalf of another.

  • Prepaids

    Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

  • Prepayment

    A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

  • Prepayment Penalty

    Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

  • Principal

    The amount of debt, not counting interest, left on a loan.

  • Q-form

    A Q-form is series of questions that you complete in order to request a loan. What does the Q stand for? You choose - quality, quick, qualification, questionnaire. Our unique Q-forms have been designed by LendingTree specifically for the Internet to make your experience as easy as possible.

  • Quitclaim Deed

    A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

  • Rate

    See Interest Rate.

  • Rebate

    A special payment from the manufacturer to the customer to promote sales of slow-selling models. Also called a "Customer Incentive".

  • Recision

    The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

  • Recording Fees

    Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

  • Refinancing

    The process of the same mortgagor paying off one loan with the proceeds from another loan.

  • Restrictive Covenants

    Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

  • Security

    Property pledged to the creditor in case of a default on a loan; see collateral.

  • Security Interest

    The creditor's right to take property or a portion of property offered as security.

  • Service Charge

    A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

  • Servicing

    All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

  • Settlement

    See Closing.

  • Settlement Costs

    See Closing Costs.

  • 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.

  • Special Assessments

    A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.

  • Special Lien

    A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. Also see lien.

  • Special Warranty Deed

    A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

  • Sticker Price

    The manufacturer's suggested retail price for a vehicle. Also called "List Price" or "MSRP."

  • Tax

    As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

  • Term

    The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

  • Title

    A document that gives evidence of an individual's ownership of property.

  • Trade-in Value

    The value of a used vehicle that you trade in to a dealership as part of a purchase.

  • Trustee

    A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

  • Truth-in-Lending

    A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.

  • Upside-down

    Describes a situation where the balance owed on a loan is greater than the current value of a vehicle.

  • Verification of Employment

    A document signed by the borrower's employer verifying his/her position and salary.

  • Wraparound

    Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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