Glossary of Auto Finance Terms

Acquisition Fee	A fee charged by some auto leasing companies for originating the loan, just as mortgage lenders charge points as an origination fee. This fee is often not specified in a contract, but rolled into the capitalized cost when calculating monthly payments.
Actual Cash Value	ACV. The amount of money that is really paid for a used vehicle. Usually less than the amount allowed on a trade-in for a newer vehicle.
Add‐on Interest	Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early.
Amount Financed	Includes principal, taxes, tags, licenses, and any cancelable insurance.
Annual Percentage Rate	APR. A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans.
Balance on Street	Also called Cash in Deal or Money on the Street. The total cost of the inventory sold less the down payment received. The total net cash the dealer has outlaid to sell the vehicle.
Bill of Sale	A formal instrument used to transfer title to a vehicle from one party to another party.
Buyer's Guide	The Federal Trade Commission's Used Car Rule that must be posted in the window of each used car offered by a dealer for sale. It indicates whether the vehicle comes with a warranty or as is, says that the customer has the right to have the vehicle inspected by a mechanic before buying, and lists some of the major problems that might occur in any vehicle.
Buy Rate	Rate at which a lender is willing to finance a customer due to their credit rating.
Certificate of Title	A document issued by most states to evidence ownership of a vehicle.
Collateral	The property that is pledged as security for an obligation, for example, a vehicle financed for a customer under a retail sales contract. Gives the lender the right to retake and sell the collateral for the purpose of liquidating the debt in case of nonperformance by the customer.
Collateral Verification	Interview by the lender with the customer to verify that the vehicle that the customer is buying matches the vehicle submitted by the dealer concerning equipment, trim and model issues.
Cosigner	A person who agrees to be liable for repayment of a loan without personally benefiting from the loan or share in the proceeds of the loan. A cosigner is usually needed if the applicant has little or no credit history.
Credit Bureau Investigation	To inquire from one of the major credit reporting agencies as to the customer's credit history.
Credit Rating	A judgment of someone's ability to repay debts, based on current and projected income and history of payment of past debts, sometimes expressed as a number called a credit score or FICO score.
Debt to Income	DTI. The percentage of pre‐tax earnings that are spent to pay off loans for obligations such as auto loans, student loans and credit card balances. Lenders look at two ratios. The front‐end ratio is the percentage of monthly pre-tax earnings that are spent on house payments (including principal, interest, taxes and insurance). In the back-end ratio, the borrower’s other debts are factored in.
Dealer Auction	An auction open only to new and/or used vehicle dealers licensed by the state.
Dealer Markup	An additional amount asked by the dealer on a "hot" vehicle over and above the MSRP.
Default	Failure to meet stipulated terms of a contract, for example, a borrower is "in default" when all or part of an installment is due and has not been paid.
Deficiency	The amount still owed by a borrower after a repossession has been sold and the proceeds have been applied to the account.
Delinquency Rate	Number of vehicles repossessed by the lender as a percentage of the number of loans made.
Discount Fee	Fee lender charges for financing credit-challenged individual, which directly affects the dealer profit margin.
Documentary Fee	Charge to the customer to cover the cost of processing the paperwork and sales contract. In the event of a prepayment or repossession, the doc fee is deducted from the total contract charge before applying any rebate formulas.
Extended Warranty	Known as service contract. A contract that covers certain car repairs or problems after the manufacturer's or dealer's warranty expires.
Finance Charge	The amount charged to a customer by a dealer for the privilege of paying for a vehicle purchase over a period of time.
Finance and Insurance	F&I. Department of a dealership where financing terms are arranged and various products like credit insurance and extended warranties are sold.
Floor Plan	Describes the means by which a dealer finances its inventory of vehicles. The dealer pays interest to the financial institution carrying the floor plan on the vehicles in inventory until the vehicles are sold.
Gap Insurance	A type of insurance that pays the difference between what you own and what the vehicle is worth in the event the car is stolen or destroyed.
Gross Income	All the money, goods, and property you receive during the year before you reduce it by using adjustments, deductions, sales tax or exemptions.
Gross Profit	The excess of the price received on the sale of a vehicle over the cost of that vehicle.
Joint Applicant	When two people apply for a loan together and both share the responsibility for the repayment of the loan and share in the proceeds of the loan.
Lien	A contract that holds the financed collateral as security against default of payment for such collateral.
Limited Warranty	Warranty offered by the dealer on used vehicles that is limited to time, parts covered, conditions of maintenance, and mileage.
Loan Rate	Percentage a borrower pays for the use of money, usually expressed as an annual percentage.
Net Income	The income amount left after taxes have been paid.
Out of Trust	Occurs when a dealer sells a floor-planned vehicle without prompt payment of wholesale balances to the floor plan lender. This is in violation of Federal Law.
Participation	Percentage of reserve paid to the dealer. Sometimes lender will pay a smaller percentage but will not have the right to charge back.
Pay Off	The current indebtedness on the vehicle with the dealer is taking in trade from a potential customer, less the amount required for the lien holder to release the title to the dealer.
Payment Protection Plans	The Credit Insurance and Extended Warranty programs designed to protect the customers' investments in the vehicles and their savings.
Pre‐computed Loan	Interest owed over the life of the loan is calculated using a standard amortization table. Borrower is obligated to pay back principal plus the full amount of interest that accrues over the entire term of the loan.
Pre‐payment Penalty	A lender's charge to the borrower for paying off the loan before the end of the term.
Principal Balance	The unpaid cash balance plus insurance charges and registration fees, tax, title, and licenses on a vehicle purchase.
Regulation Z	A rule, enforced by the Federal Reserve Board and implementing the Truth‐in‐Lending Act, which requires lenders to disclose all credit‐related costs including the annual percentage rate.
Rescission	Cancellation of a contract by agreement of the parties
Reserve	Amount of Participation lender pays the dealer for writing the contract rate above the buy rate.
Retail Sales Contract	Also, Installment Sales Contract or Time Purchase. All refer to a credit obligation paid over a specified period of time through regular monthly payments.
Simple Interest Loan	A method of allocating the monthly payment between interest and principal. The interest charged is determined by the unpaid principal balance on the loan, the interest rate, and the number of days since the last payment. The rest of the payment goes to the principal. Making early payments or additional payments will reduce the loan's principal and cut the total interest paid over the life of the loan.
Wholesale	When a used car trade-in is sold to a wholesaler or at an auction and not put in the lot for retail sale.
Wholesale Balances	Dollar amount of the inventory that is floor planned by the dealer with a floor plan lender.