Glossary is dedicated in making your car loan process easy and informative. You can only take a perfect decision when you are very sure about different auto financing terms. Knowing everything mentioned in the auto loan contract will help you avoid any unpleasant surprises in future. So, make use of this comprehensive list of car loan terms to understand every aspect of the auto loan process.

Happy learning!

Acceleration Clause:
Permits the lender to increase 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 your loan.

Calculates the loan payment including interest on the outstanding balance to be paid off at the end of a fixed period.

Accrued Interest:
The amount of interest on a loan which has been accumulated till date.

Annual Percentage Rate (APR):
The actual annual cost of funds over the loan term. 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. Ideal for comparing loan quotes.

Balloon Payment:
A large payment due at the end of a loan. Using a balloon payment, the individual monthly payments can be made smaller.

Capitalization (of interest):
The arrangement between credit borrowers and lender in which interest payments are deferred as they become due and are added to the principal amount of the loan.

Debt to Income Ratio(DTI):
A debt-to-income ratio (often abbreviated as DTI) compares your monthly debt to your monthly income. Higher ratio indicates more financial burden in comparison to income.

Failure to make payments after the set number of days stipulated in your contract.

Dealer Incentive:
Programs offered by manufacturers to the dealers. The reason is to push the sales of slow-selling models or to decrease excess inventories. Dealers may pass on the savings to the buyer.

Dealer Sticker Price:
The factory sticker price, plus the suggested retail price of dealer-installed options and dealer preparation. Other names : "MSRP" or "list price."

When you are unable to repay a loan, you may go into deferment. It means you can avoid making payments towards the principal amount. Deferment causes extension of the scheduled contract maturity date.

Deferred Interest:
If a scheduled payment amount doesn't cover the amount of interest, the interest amount is added to the principal balance of the loan. When a loan's principal balance increases because of deferred interest, it is known as negative amortization.

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 in the sticker price.

Grace Period:
The period of time after the due date that's allowed before a penalty is charged.

Franchised dealership:
A franchised dealer enters into a contract with an automobile manufacturer. The contract allows the dealer to sell the manufacturer's vehicles. The name of Franchised dealerships usually include the manufacturer's name e.g., "John Doe Ford".

The right of a creditor to sell the collateral property of a debtor who in unable to meet the obligations of a loan contract.

Loan-To-Value Ratio:
The ratio which is calculated after considering the amount of the mortgage loan and the appraised value of the property.

Mint Condition:
Used for an item which is just like new.

Off-Site Financing (or Bank/Credit Union Financing):
It refers to the car financing options that an auto buyer acquires from a bank, credit union or any other financial institution.

On-Site Financing (or dealer financing):
It refers to the car financing options that an auto buyer acquires from a dealer and not from a bank, credit union or any other financial institution.

Origination Fee:
The fee charged by a lender to complete loan documents, make credit checks, inspect and sometimes appraise a property; usually calculated as a percentage of face value of the loan.

Trade-in Allowance:
The amount the car dealer agrees to pay for a used, trade-in vehicle. Most consumers often use this allowance towards the purchase of a new vehicle.

Truth in Lending:
A federal law enacted in 1968 with the aim of protecting consumers in their dealings with lenders and creditors.

Trade in:
The value of a used vehicle that you trade-in to a dealership as part of a purchase.

Upside down/Negative equity:
When the balance owed on a loan is greater than the current value of the vehicle which is used to secure that loan.

VIN (Vehicle Identification Number):
The unique 17-digit number found on every car.


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