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Auto Loan Glossary

When buying an automobile, have you ever wondered what a particular auto loan term or phrase means? Our auto loan glossary below provides definitions for all of the common terminology:

Auto Loan Glossary- A to C

Accrue. 
To accumulate interest charges on your auto loan.

Accrued interest. 
Interest on an auto loan, which has accumulated to date.

Adverse Action. 
The decision to not grant credit either in the amount or according to the terms.

Adverse Action Notice. 
A document explaining the reason(s) for denying a credit application.

Add-Ons. 
Added products or services to the vehicle sold by dealerships. Some examples include rustproofing, upholstery treatments, alarm systems, and extended warranties. Add-ons increase the price of the vehicle and, consequently, increase your monthly payments.

Amortization. 
The reduction of debt by regular payments of principal and interest over a period of time.

Amortize. 
To pay off an auto loan in regular installments over the loan’s established term.

Amount Financed. 
The amount of credit provided by the financial institution.

Ancillary Charges. 
Supplementary services, coverage, or products that can be bought with the car.

Annual Percentage Rate (APR). 
A measure of the cost of credit expressed as a nominal yearly rate. Lenders must, by law, disclose the APR. The rate is a benchmark for various loans. This means, even simple interest and compound interest loans may be compared.

Appreciation. 
The value that assets gain over a period of time, as opposed to depreciation.

Application. 
An initial statement of personal and financial information.

Assets. 
Things you own.

Balance. 
The amount in an account or owed on a loan. The balance in a checking account is the amount of money in that account. The balance on a loan account is the amount that needs to be repaid.

Base Price. 
The cost of a car without options. Base price includes standard equipment, factory warranty, and freight. The MSRP sticker has this prince printed on it.

Basis Point. 
One hundredth of one percent in the yield of an investment, or .01%.

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

Black Book. 
A publication of National Auto Research. It is a standard reference used to determine the auction value of used vehicles.

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.” A Blue Book reports wholesale value and retail value for each vehicle.

Borrower. 
An individual who obtains credit from a lender. This loan comes with the agreement that it will be repaid. This includes interest and within a defined timeframe.

Buyer. 
An individual who purchases a vehicle. This person and is liable for the repayment of the loan.

Captive Finance Company. 
A separate company owned by an auto manufacturer to finance product sales.

Cash Price.
The price at which a seller offers to sell a vehicle or service.

Co-Buyer.
An individual who purchases a vehicle with a buyer. This person is as liable for repayment of the loan as the second party.

Collateral. 
Property you pledge as security for a loan that you will give up if you default on the loan. The vehicle you purchased is the collateral for your Wells Fargo Dealer Services loan.

Collision Insurance. 
Insurance covering damage to your vehicle resulting from a collision with another vehicle or object.

Comprehensive Insurance.
Insurance covering damage to your vehicle caused by events other than a collision. These could include floods, fire, hail, theft, or vandalism.

Contractual Obligation.
The legal responsibility of a borrower to repay a loan.

Co-Owner.
An owner of a vehicle.

Co-Signer.
An individual who agrees to pay the auto loan should the buyer default. This includes all the agreements stated in the auto loan contract.

Credit.
A loan granted by a financial institution to a consumer.

Credit Bureau. 
A private company that collects information about consumers. They collate public records and reports from banks, creditors, etc.

Credit History. 
A record of a consumer’s open and repaid debts. The history is also made up of information about identity, public records, judgments, and bankruptcies.

Credit Report. 
The report the credit bureau supplies about an individual’s payment history.

Credit Score. 
An assessment used to check the amount of risk involved in a credit transaction. This is established from the analysis of information provided in a consumer’s application. It also takes into account the potential loan and the consumer’s credit report.

Creditor.
A financial institution that extends credit.

Customer Incentive. 
A special payment made by the manufacturer to the customer to increase sales or reduce excess inventory. Also called a “rebate.”

Dealer Charges. 
Fees for services or products sold by the dealer. These are as well as the vehicle and include rustproofing and undercoating.

Dealer Invoice. 
The invoice given to the dealers by the manufacturer for a vehicle and any other optional accessories.

Dealer Sticker Price. 
The factory sticker price, the suggested retail price of dealer-installed options, and the dealer preparation. Also referred to as “MSRP” or “list price.”

Auto Loan Glossary- D to F

Debt.
An obligation resulting from borrowing money.

Deferment. 
The deferral of payments to the end of the contract, causing an extension of the scheduled contract maturity date.

Delinquent. 
The failure to make a loan payment by a borrower at a scheduled time. Also, know as “defaulting on a loan”.

DMV. 
Department of Motor Vehicles.

Depreciation. 
The decrease in the market value of a vehicle over time. What affects the amount of yearly depreciation is variables. Some of these are car condition, resale market supply and demand, and reputation of the manufacturer and/or model.

Destination Charge. 
Vehicle shipping, freight, or delivery fees to the dealer, charged by the manufacturer or port of entry. This charge is usually passed on to the buyer without a markup.

Down Payment. 
The difference between the loan amount and the sale price which is usually paid immediately upon purchase in the form of cash or an equity trade-in value.

Due Date. 
An established date each month on which a loan payment is due.

Electronic Funds Transfer (EFT). 
A process allowing the lender or the borrower to transfer payments electronically between bank accounts or to a lender.

Equity (vehicle).
The value of the vehicle less the loan amount. The difference equates to the sum owned by the buyer.

Extended Warranty.
A contract covering specified car-related problems after the end of the manufacturer’s warranty.

Extension. 
A change to a contract that extends its maturity date.

Fair Credit Reporting Act. 
A federal law that governs the exchange of credit information.

Fair Market Value. 
The amount that a consumer is willing to pay for a vehicle.

FDIC. 
Federal Deposit Insurance Corporation.

Finance Charge. 
The cost of credit to the consumer expressed in a dollar amount.

Finance Company. 
An institution that finances purchases for consumers, or makes loans to consumers who make scheduled payments toward a loan maturity.

Finance Contract. 
The legal document that contains disclosures, terms, and conditions of a loan.

Fixed-Rate Loan. 
A loan in which the interest rate remains constant throughout the life of the contract.

Franchised Dealer. 
A company to which an automobile manufacturer authorizes to sell that manufacturer’s products. Independent used car lots, automobile brokers, and leasing companies are not franchise dealerships. A franchise dealership has an affiliation with the manufacturer included in its name.

Auto Loan Glossary- G to I

Gross Income. 
Consumer or borrower income before tax.

Guaranteed Automobile Protection (GAP). 
Coverage that pays any remaining balance owed on a loan after payment of a total loss insurance claim.

Guarantor. 
An individual that agrees to pay the debt of another should that person default on payments.

Independent Dealer. 
Independent used car lots, automobile brokers, and leasing companies who are not franchise dealerships. An independent dealership does not usually have an affiliation with an automobile manufacturer.

Inspection. 
The systematic evaluation of a used car.

Installment Plan. 
A method of buying assets on credit and making payments at regular intervals for a specific term.

Insurance. 
A legal agreement with an insurance company that provides reimbursement in the case of damage or theft to collateral. Wells Fargo Dealer Services requires you to maintain insurance on the vehicle you buy.

Interest
A sum paid or charged for the use of money or for borrowing money. A percentage of the rate of a loans interest.

Insurance Premium. 
Payments made to an insurance company to cover the cost of insurance.

Interest rate. 
The periodic charge expressed as a percentage for use of credit.

Invoice Price. 
The manufacturer’s initial charge to the dealer, always including freight (destination or delivery) charges. The invoice price may not reflect the dealer’s final cost. This is due to rebates, allowances, discounts, and incentive awards the dealer may receive.

Auto Loan Glossary- K to M

Kelley Blue Book. 
A published value of a used vehicle in a specific market area.

Late Fee. 
A charge assessed by a financial institution for payments received after a specific due date. These charges are governed by state laws.

Lemon Law. 
Refers to various state laws protecting consumers against buying vehicles found to be defective on a regular basis.

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 or creditor. In a lease, the leasing company continues to own the vehicle.

Lender. 
Financial institutions that provide credit to consumers with the understanding that the money borrowed will be repaid, with interest, within a defined schedule.

Liabilities.
The money you owe.

Liability Insurance. 
Protection for a policyholder, up to an established figure, for amounts payable to another individual for personal injury or property damage.

List Price. 
The manufacturer’s suggested retail price for a vehicle. Also referred to as “MSRP” or “sticker price.”

Loan.
A form of financing whereby you borrow money to buy a vehicle.

Loan Balance. 
The amount owed on a loan less the amount of payments made.

Loan Agreement. 
The written agreement between a borrower and a financial institution identifying the terms of the loan.

Loan-To-Value Ratio (LTV). 
A ratio determined by dividing the loan amount by the sales price or appraised value expressed as a percentage. For example, with a loan amount of $8,000 and a sales price of $10,000 your loan-to-value ratio would be 80%.

Manufacturer. 
The original producer of a vehicle.

Manufacturer’s Rebate. 
A program offered directly to buyers by auto manufacturers to increase sales or reduce excess inventories.

Manufacturer’s Suggested Retail Price (MSRP). 
The vehicle sale price which appears on a label affixed to the car window showing the base price, manufacturer’s installed options, the manufacturer’s suggested retail price, plus manufacturer’s freight or transportation charge, and fuel economy (mileage). The label is required by federal law and no one can remove it apart from the purchaser. The MSRP is the recommended selling price for a vehicle plus any optional accessories.

Mark-Up. 
The difference between the invoice price and the price for which the dealer sells the car.

Maturity Date. 
The date on which the balance of the loan becomes due and payable.

Monroney Sticker. 
The price sticker required by federal law for all new vehicles. This lists all the vehicle’s options along with the manufacturer’s suggested retail price (MSRP).

Monthly Payment. 
The amount of principal and interest you must pay each month under the terms of the finance contract.

Auto Loan Glossary- N to P

NADA. 
National Automobile Dealers Association. NADA provides counsel on legal and regulatory matters. It also represents dealers on Capitol Hill. Lastly, it develops research data on the automobile industry and operates training and service programs to improve dealership business operations, sales, and service practices.

Negative Equity. 
When the amount owed on a vehicle is greater than the vehicle’s worth.

Net Worth. 
Assets minus liabilities.

Odometer.
An instrument usually connected to the speedometer that records a vehicle’s elapsed mileage.

Optional Equipment
Equipment not included in a vehicle’s base price. Depending on the vehicle, optional equipment may include other items. These can be air conditioning, automatic transmission, passenger-side airbags, or high-quality sound systems.

Payment. 
The amount of principal and interest you pay each month.

Pink Slip
A vehicle’s title certificate in California.

Preparation Charges. 
Charges imposed by a dealer for preparing a newly-purchased car for delivery to the buyer. Includes the cost of gas, verifying appropriate fluid levels, last minute touch-up cleaning, etc.

Principal. 
The amount of the original loan paid to the borrower by the creditor. Also called “amount financed.”

Principal Balance. 
The unpaid balance on a loan.

Auto Loan Glossary- Q to S

Qualify. 
A consumer’s ability to meet a lender’s criteria for approving credit terms.

Quote. 
A price representing the consumer’s cost of the vehicle.

Rate.
The amount of interest on a loan expressed as an annual percentage of the principal.

Rebate.
A special payment from the manufacturer to the customer to reduce excess inventories. Also called a “customer incentive.”

Refinancing. 
Refinancing is the process of obtaining a new loan to replace an existing loan or lease balance.

Regulation Z. 
Enforcing the Truth-In-Lending Act, Regulation Z applies to lenders and requires disclosure of credit terms.

Retail Blue Book Value. 
The approximate value of a used car if sold privately or by a dealership. A publication of Kelley Blue Book, Inc. is one of several standard references used to determine the value of used vehicles. The value is sometimes called the “Blue Book Value.” Blue Books show a wholesale value and a retail value of each vehicle.

Salvage / Branded Title. 
A title designation used when an insurance company purchases a vehicle that has been severely damaged (i.e., totaled) and then resells the vehicle. Each state has different regulations on the sale of salvaged vehicles. Wells Fargo Dealer Services does not finance vehicles with salvaged or branded titles. Vehicles returned to the manufacturer under the Lemon Law or other similar state laws, will have a branded title.

Secured Loan
When collateral secures the loan.

Security.
Assets or personal property used as collateral to secure a loan.

SSN.
Social Security number.

Sticker Price.
The manufacturer’s suggested retail price for a vehicle. Also called “list price” or “MSRP.”

Auto Loan Glossary- T to W

Tax. 
A percentage of the final sales price that needs to be paid to local, state, and/or federal governments.

Term.
The period covered by a vehicle loan or lease, 24 to 84 months.

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 amount that the dealership will credit you for the vehicle you provide as partial or full payment for another vehicle.

Truth-In-Lending Act. 
An act governing the disclosure of credit terms and costs that appear on a loan agreement.

Underwriting
The process of verifying data and approving or declining an application for a loan.

Upside-Down. 
A situation that occurs when the value of your vehicle is lower than the outstanding balance of the loan secured by the vehicle.

Vehicle Identification Number (VIN). 
A seventeen-character code that identifies each vehicle manufactured in the world. You can find a vehicle’s VIN mounted on the dashboard of the driver’s side. It is visible through the windshield or stamped on the vehicle’s firewall.

Warranty. 
A guarantee from the dealer or manufacturer that a car will perform as claimed.

Wholesale Blue Book Value. 
The approximate price that a dealership will pay to buy a used vehicle. A publication of Kelley Blue Book, Inc. is one of several standard references used to determine the value of used vehicles. The value is sometimes called the “Blue Book Value.” Blue Books show a wholesale value and a retail value of each vehicle.