APR
The "Annual Percentage Rate" is a yearly rate of interest which
includes fees and costs paid to acquire the loan. Lenders are required by
law to disclose the APR, and the rate is used to compare various loans available,
making even simple interest and compound interest loans comparable.
Advertising Fee
An amount charged the buyer to cover the cost of national and local advertising.
Many suggest that this fee should be no more than 1-1.5% of the MSRP.
Amortization
Payment of an obligation in a series of installments or transfers.
Application
An initial statement of personal and financial information which is required
to approve your loan.
Appraisal
An opinion of the market value of an asset as of a specific date.
B
Balloon Note
At the end of the loan term, some or all of the original loan amount is
due and payable.
Bankruptcy
A debtor that, upon voluntary petition or one invoked by the debtor's
creditors, is judged legally insolvent. The debtor's remaining property
is then administered for the creditors or is distributed among them.
Base Price
The cost of a car without options, but including standard equipment, factory
warranty, and freight. This price is printed on the Monroney sticker.
Borrowing
To obtain or receive (something) on loan with the promise or understanding
of returning it or its equivalent.
C
Capitalized Cost
The total amount of value for the car upon which a lease is based, similar
to the selling price of an automobile you purchase.
Capitalized Cost Reduction
The amount paid in cash or trade-in at the inception of a lease, similar
to a down payment.
Closed End Lease
A lease for which the amount representing the residual value of the auto
at the end of the lease is mutually agreed upon within the lease. Risk
of depreciation greater than anticipated is born by the lessor, the company
leasing the vehicle.
Collision Insurance
Insurance which covers damage to your vehicle which results from a collision
with another vehicle or object.
Comprehensive Insurance
Insurance which covers damage to your vehicle caused by events other than
a collision, such as flood, fire, hail, theft, or vandalism.
Credit
Reputation for solvency and integrity entitling a person to be trusted
in buying or borrowing.
D
Dealer Charges
Charges for extra services or products sold by the dealer, including rust
proofing, undercoating and extended warranties.
Dealer Holdback
An allowance, usually between 2 and 3% of MSRP, which manufacturers provide
dealers, frequently as a credit to the dealer's account. A holdback allowance
may allow the dealer to pay the manufacturer less than the invoiced amount.
Therefore, the vehicle could be sold to you at cost while permitting the
dealer to receive a small profit. Holdback is also known as a "pack".
Dealer Incentives
Programs offered by manufacturers to increase the sales of slow-selling
models or to reduce excess inventories. Dealers may elect to pass on the
savings to the buyer.
Dealer Invoice
The amount which dealers are invoiced or billed by the manufacturer for
a vehicle and any optional accessories.
Dealer Sticker Price
The Monroney sticker price plus the suggested retail price of dealer-installed
options, dealer preparation, and undercoating.
Deed
A document sealed as an instrument of bond, contract, or conveyance, especially
relating to property.
Depreciation
Depreciation is the decrease in a car or truck's value as it ages. The
amount of yearly depreciation is influenced by the model of the vehicle,
how well it is maintained, supply and demand in the resale marketplace,
and reputation of the manufacturer and model. Convertibles, autos with
large engines, trucks, and vans tend to depreciate less than other vehicles.
Based on research we conducted, we use the following rates to compute
yearly depreciation:
Average Decrease in Value Per Year
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
High Depreciation 35% 18% 16% 20% 18%
Average Depreciation 25% 12% 12% 14% 15%
Low Depreciation 16% 5% 8% 11% 12%
Destination Charge
The fee charged for shipping, freight, or delivery of the vehicle to the
dealer from the manufacturer or port of entry. This charge is to be passed
on to the buyer without any mark-up.
Down Payment
The difference between the loan amount and the purchase price, usually
paid immediately upon purchase in the form of cash or trade-in value.
E
Equity
The residual value of a business or property beyond any mortgage thereon
and liability therein.
Escrow
The residual value of a business or property beyond any mortgage thereon
and liability therein.
F
Financing
The management of money, banking, investments, and credit.
Foreclosure
The act of foreclosing, especially a legal proceeding by which a mortgage
is foreclosed.
G
Gap Protection
A type of insurance covering the amount owed due to early termination
of a lease agreement which is not covered by auto insurance. Involuntary
early termination of a lease may occur when a car is stolen or significantly
damaged in an accident. The actual cash value of the car paid by auto
insurance may not be adequate to pay the lease payoff balance and early-termination
penalties.
Gross Income
For qualifying purposes, the income of the borrower before taxes or expenses
are deducted.
H
Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and
in the amount you choose, up to a maximum credit limit for which you have
qualified. Repayment is secured by the equity in your home. Simple interest
(interest-only payments on the outstanding balance) is usually tax-deductible.
Often used for home improvements, major purchases or expenses, and debt
consolidation.
Home Equity Loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured
by the equity in your home. Interest paid is usually tax -deductible.
Often used for vehicle purchases, home improvement or freeing of equity
for investment in other real estate or investments. Recommended by many
to replace or substitute for consumer loans whose interest is not tax-deductible,
such as auto or boat loans, credit card debt, medical debt, and education
loans.
I
Insurance
Coverage by a contract binding a party to indemnify another against specified
loss in return for premiums paid. Interest: A charge for a loan, usually
a percentage of the amount loaned.
Invoice Price
The manufacturer's initial charge to the dealer, always including freight
("destination" or "delivery") charges. This price
may not reflect the dealer's final cost due to rebates, allowances, discounts,
and incentive awards the dealer may receive.
Interest Rate
The percentage of a sum of money charged for its use.
L
Lending
To provide (money) temporarily on condition that the amount borrowed be
returned, usually with an interest fee.
Lien
The right to take and hold or sell the property of a debtor as security
or payment for a debt or duty.
Loan
That which one lends or borrows, esp. a sum of money lent at interest;
as, he repaid the loan.
Lock or Lock In
A commitment you obtain from a lender assuring you a particular interest
rate or feature for a definite time period. Provides protection should
interest rates rise between the time you apply for a loan, acquire loan
approval, and, subsequently, close the loan and receive the funds you
have borrowed.
M
Manufacturer's Rebate
A program offered directly to the buyer by manufacturers to increase the
sales of slow-selling models or to reduce excess inventories.
Money Factor
A percentage representing the cost of the money required to lease a vehicle,
similar to the interest rate paid on a loan.
Monroney Sticker Price
Required by federal law, the price which appears on a label affixed to
the car window showing the base price, the manufacturer's installed options
with the manufacturer's suggested retail price, the manufacturer's freight
or transportation charge, and the fuel economy (mileage). The label may
not be removed by anyone other than the purchaser.
Mortgage
A temporary, conditional pledge of property to a creditor as security
for performance of an obligation or repayment of a debt.
Mortgage
One that holds a mortgage.
Mortgagor
One that mortgages property.
MSRP
The "Manufacturer's Suggested Retail Price" is the recommended
selling price for a vehicle and each of its optional accessories.
O
Open End Lease
A lease for which you, the lessee, must pay any difference between the
residual value of the auto agreed upon within the lease and the fair market
value, if lower, of the auto at the end of the lease. Risk of depreciation
greater than anticipated is born by the lessee.
P
Preparation Charges
Charges imposed by a dealer for preparing a newly purchased car for delivery
to the buyer. Includes filling the gas tank, verifying appropriate fluid
levels, last minute touch-up cleaning, etc.
R
Refinance
To provide new financing or new financing for, as by discharging a mortgage
with the proceeds from a new mortgage obtained at a lower interest rate.
Repossession
To reclaim possession of for failure to pay installments due.
Residual Value
The amount agreed upon to represent the value of the car at the termination
of a lease, usually determined by the amount of depreciation in the car's
value predicted during the term of the lease.
S
Savings Rate
Your savings rate is used to decide between two options that cost you
money at different times. (See Cost Analysis) Please input a pre-tax average
that you think you can earn.
T
Tax Rates
In some auto financing calculators, you are asked to make a comparison
between two financing options. If one of the options costs more than another,
the difference is invested into a savings account because you've saved
money with that option. To make a fair comparison, the calculator tracks
the balance and interest earnings on this account. As earnings in this
account grow, they are taxed at the rate you indicated.
To estimate your tax rate, divide the amount you paid in taxes last year
by your income. If prompted, please include federal and state taxes.
Term
The length of time that you will make payments on your loan. Typical car
loans have terms of 24, 36 or 48 months.
Title
The aggregate evidence that gives rise to a legal right of possession
or control.
Trade-in Value
The amount that the dealership will credit you for the vehicle you provide
as partial or full payment for another vehicle. Amount credited is frequently
about 5% below the wholesale value of the vehicle.
U
Underwriting
The process of verifying data and approving a loan.
Up front Costs
Up front costs are any fees and charges collected at the time of
the loan, as opposed to over the life of the loan. Up front fees
can reduce the interest rate paid over the life of the loan.
Upside-down
A situation which occurs when the value of your vehicle is lower than
the outstanding balance of the loan secured by the vehicle.
V
Vendor
One that sells or vends.
W
Waive
To give up (a claim or right) voluntarily; relinquish.
Y
Yield
The annual rate of return on an investment, expressed as a percentage.
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