Auto Loans Glossary
Advertising fee
A fee the auto dealer passes on to an auto buyer for advertising costs.
Annual percentage rate (APR)
The annual percentage rate APR is an interest rate that is different from the
note rate. It is commonly used to compare loan programs from different lenders.
The Federal Truth in Lending law requires that mortgage companies disclose the
APR when they advertise a rate. Typically the APR is found next to the rate.
Base price
The cost of a vehicle including standard equipment, factory warranty and
destination charges.
Closed-end lease
Lessor assumes financial responsibility for any difference between depreciated
value and actual cash value. Also called net lease that establishes a
residual value for the leased auto and fee amounts due at the end of the lease
term.
Collision insurance
Insurance that pays to repair damage caused to your vehicle in the event it is
involved in a collision.
Comprehensive insurance
Insurance that pays for damage such as theft, vandalism or bad weather.
Dealer charges
Amounts charged for additional options or features furnished by the dealer .
Dealer holdback
Dealer holdback is a percentage of either the MSRP or invoice price of a new
vehicle that is paid to the dealer by the manufacturer to help with the
dealership's financing of the vehicle..
Dealer incentives
Programs offered by auto manufacturors to the dealer to encourage sales and
reduce inventories.
Dealer invoice
Amount that auto manufacturers charge dealers for vehicles, including options.
Dealer sticker price
The total price of the vehicle. Dealer sticker price is also known as sticker
price, or MSRP.
Destination charge
The fee passed on to the buyer for shipping charges of the vehicle to the
dealer.
Down payment
The part of the purchase price paid in cash or trade-in value.
Gross income
Total income before taxes or deductions. Gross income is one of the factors
lenders weigh when they review loan requests.
Interest rate
The fee charged by a lender for the use of borrowed money. Interest rates can be
calculated as simple, compounded or effective.
Invoice price
The auto manufacturer’s base charge to a dealer including freight.
Manufacturer's rebate
A incentive program that auto manufacturers offer consumers directly to
encourage sales.
MSRP
The Manufacturer's Suggested Retail Price.
Open-end lease
A lease involving an additional payment, the amount of which will depend on the
value of the vehicle when it is returned Also called a finance lease.
Preparation charges
Dealer charges for preparing a newly purchased auto for delivery to the buyer.
Principal
The original amount borrowed for a loan.
Residual value
The remaining value of a leased auto at the end of the lease term. Also
known as book value.
Simple interest
The interest calculated on a principal sum, not compounded on earned interest.
Term
The period of time you will be making payment on you loan.
Title
A legally binding document that establishes evidence of ownership of an asset
and any liens or other claims filed against the asset.
Trade-in value
The amount a dealership will pay you for a vehicle you wish to trade in.
Upfront costs
Fees and charges collected in advance, before a loan is funded.
Upside-down
Owing more on your vehicle than what it is worth.
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