Glossary of Auto Loan Terms

• 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.