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Car Loan Glossary For Customers
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Use this glossary of common car loan terms.
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Acceleration Clause :
If you default on a loan this clause allows the
lender to speed up the rate in which the loan is paid off. This
can include an entire balance to be paid off immediately.
Agreement of Sale :
Otherwise known as a sales or purchase
agreement, this agreement basically states that the seller is
selling and the buyer is buying under a specified set of terms.
Both parties would then sign the contract.
Amortization :
Calculates the loan payment including
interest on the outstanding balance to be paid off at the end of a
fixed period.
Annual Percentage Rate (APR) :
Often confused with interest rate, an APR
supplies the cost of credit over the course of a year. It is
supplied as a percentage taking into consideration the amount
finance, any charges, and the term of the loan.
Appraisal :
An estimate of the value of property, made by
a professional appraiser.
Appraisal Fee :
A service fee for estimating the value of
property.
Asset :
Property that can be used to repay debt, such
as stocks, bonds, cars or a house.
Automated Teller Machines (ATMs) :
Essentially computer terminals in which
customers can withdrawal, deposit, or received balance statements
of their bank accounts or credit cards.
Billing Error :
Any mistake in your monthly statement as
defined by the Fair
Credit Billing Act.
Broker :
A person who assists a client in negotiating
contracts or assisting in the arrangement of funding, but does not
loan the money themselves.
Business Days :
The period of time during a given work week
that a company considers itself open, national holidays and
weekends are usually not considered business days. Feel free to
make an inquiry at the company your working with to find out what
days it counts as business days under the Truth in Lending and
Electronic Fund Transfer Acts.
Certificate of Title :
Is evidence of vehicle ownership issued by
the Department of Motor Vehicles when it has confirmed said
ownership. There is a fee to receive one based on state, taxes and
other possible registration fees.
Closing :
The meeting between the buyer, seller and
lender where the property and funds legally change hands. Also
called settlement.
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 on your payments. Car and/or a house
would be a good example.
Commission :
When a real estate agent or broker finds and
completes a sale, that individual is paid money by
the seller for those services rendered.
Commitment :
An agreement, often in writing, between a
lender and a borrower to loan money at a future date subject to
the stated conditions.
Cosigner :
Another person who signs your loan and
assumes equal responsibility for it. This usually comes into play
when the original person applying for the loan does not have
enough credit to take on the responsibility themselves.
Credit :
Reputation for solvency and integrity
entitling a person to be trusted in buying goods or borrowing
money.
Credit Bureau :
An agency that keeps your credit record.
Credit Card :
A card used from time to time to borrow money or
buy goods or services on credit. Visa, MasterCard, American
Express and Discover are just some examples.
Credit Scoring System :
A statistical system used to rate credit
applicants according to various characteristics relevant to
creditworthiness.
Creditor :
A lender to whom money is owed.
Creditworthiness : Past and future
ability to repay debts.
Debit Card (EFT Card) :
A card that looks fairly identical to a credit
card, that an individual can use to make purchases and other
electronic transactions. The advantage of this card is that you
are not adding to your debt, just withdrawing money from you bank
account.
Default :
Failure to repay a loan or otherwise meet the
terms of your credit agreement.
Delinquency :
Failure to make payments on time.
Disclosures :
Information about a vehicles history that is
given to the consumer, such as accidents or repairs that has been
done to the car.
Down Payment :
The amount of money that is initially deposited
to lower the amount financed.
Earnest Money :
Money given by a buyer to a seller as part of
the purchase price to bind a transaction or assure payment.
Elderly Applicant :
As defined in the
Equal Credit Opportunity Act, a person 62 or older.
Electronic Fund Transfer (EFT) Systems :
A technology for transferring funds
electronically rather than by check.
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 residual value of a business or property
beyond any mortgage thereon and liability therein.
Finance Charge :
The total dollar amount credit will cost.
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.
Gross Monthly Income :
The total amount the borrower earns per month,
before any expenses are deducted (such as taxes or 401k plan).
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.
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 :
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 by the lender, expressed as a
percentage of the total amount leant. The borrower pays this
charge as payment for the loan.
Interest Rate :
Expressed as a percentage of 100, the annual
rate of interest on a loan.
Joint Account :
An account with a financial institution, such as
a bank, in which two or more people share the account. All parties
involved share legal responsibility to repay loans or debts of
this account.
Lessee :
The person who signs a lead to have temporary
use of a vehicle.
Lessor : The company that provides
temporary use of a vehicle in return for periodic payment.
MSRP :
Manufacturer's Suggested Retail Price. This is
the recommended selling price for a vehicle, set by the
manufacturer. Options added or removed from a vehicle effect this
price.
Net Effective Income :
The gross income of the borrower, minus the
percentage removed for federal and/or state income tax.
Point-of-Sale (POS) :
The physical location at which a purchase is
made by the consumer. Additionally, a method a taking
electronic payment from a consumer without
the need for a traditional check.
Prepayment Penalty :
A bank imposed fee for early payment of a loan.
This penalty is meant to protect the bank from lost income not
generated from interest on the loan.
Rate :
See Interest Rate
Refinancing :
To provide new financing for an existing loan.
The existing loan is paid with the Proceeds from the new loan.
Typically the new loan is at a lower rate, or has a longer term
than the previous loan.
Service Charge :
Additionally charges based upon the completion
of the defined service. May encompass a number of different
charges. Services charges may relate to the financial aspects of
processing a loan. A Dealer service charge may include preparation
of the vehicle for delivery.
Tax :
Based upon the cost of the vehicle. Contributed
to the government for continuation of services. Amount varies from
state to state. Some states also place additional taxes on certain
types of vehicles. i.e. Luxury tax for cars over a set value,
"Gas Guzzler" tax for larger vehicles and SUV's.
Term :
For a loan this is the period of time between
the beginning of the loan and the end date, at which time the
balance of the loan would be due.
Title :
A legal document that proves an individual’s
ownership of property.
Title Insurance :
Usually issued by a Title Insurance company,
protects a homeowner from errors made during a title search.
Determined by the value of the property being sold, the cost may
be shared between the purchaser and the seller.
Title Search :
Best performed by a title company, this is
thorough examination of municipal and public records to determine
legal ownership of property.
Trustee :
A person whom is legally entrusted with property
for the benefit of another individual or individuals. Additionally
to place a debtor’s wages, credits, or property in the hands of
a third party, in the interest of the creditor.
Verification of Employment :
Written verification of your employment. Sent by
your current employer, this may include your salary information,
and your job description.
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. THIS IS IN NO
WAY GIVING ANY LEGAL ADVICE OR REPRESENTATION. THE INFORMATION
CONTAINED HEREIN WAS COMPILED FROM VARIOUS ARTICLES. FOR ANY LEGAL
ADVICE OR REPRESENTATION SEEK YOUR OWN LEGAL COUNSEL.
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