Car Finance Terms with Definitions

Here are car finance terms with definitions. If you're involved with buying and selling cars then its a good idea to use this auto finance terms page as a reference.

Acceleration Clause: This is a clause put in some car loans that states that if you are late on a payment for any reason that the balance of the loan is due right away.

Amortize (Loan Amortization): This is a car loan where the monthly payments are equal for the entire term of the loan.

Appreciation: This car finance term is regarding the process where the value of something will rise over time.

Annual Percentage Rate (APR, Interest Rate, Loan Rate): This car finance term is the amount the car loan is costing you per year in interest.

Assets: Things like cars and houses are assets and the amount you owe on those assets are liabilities.

Collateral: Assets that are used as security for a loan. If you don't pay on the loan then the lender gets these.

Credit Line (Line Of Credit): A loan that allows you to draw from it as you need the funds.

Credit Report (Credit Rating): Your credit report is a history of all your debts and how you paid them.

Credit Score (FICO Score, FICO Credit Score, FICO): I'm not sure how its calculated, but this is a number assigned to you based on your credit history having to do with making your payments in a timely way, or not. Its one of the main things creditors will base their decision of whether to loan you money and how much to charge you for it.

Depreciation: The amount an asset loses in value over time.

FICO Score:

700 plus: You have excellent credit and will pay the lowest interest rate.
650 - 699: You have good credit and will pay a point or two more.
600 - 649: This is fair credit.
500 - 599: This is considered poor credit and you will have to suck it up and pay a lot in interest for any loan you get.
350 - 499: Your credit sucks and no normal lender would touch you with a ten foot pole. Consider a loan shark.

Interest: What you are charged for "renting" someone else's money.

Late Payment Charge (Overdue Payment Charge, Delayed Payment Charge): A fee accessed on a loan when you don't make a payment when you are supposed to.

Liabilities: Anything you owe money on is a liability.

Lien: A lien is a legal claim against property that makes it so you can't give or sell the property until the loan is paid off. When you finance a car the lender will hold the title until the loan is paid off.

Loan Term: The length of an auto loan is usually measured in months. A car loan of 36 months would mean that the term is 36 months.

Monthly Payment: A combination of the money lent to you and the interest charged on that money which is paid monthly over the term of the loan.

Negative Equity (Upside Down): When you owe more on a loan than the vehicle is worth which is typically what happens in the first couple years of a new car loan.

Net Worth: Your assets minus your liabilities equals your net worth.

Principal: The amount you initially borrowed minus the interest.

Straw Purchase: When someone buys a car and finances it in their own name for someone else to drive because the real buyer doesn't have the credit or down payment to buy the car in their own name.

Term Loan: This is one of the car finance terms having to do with a loan that is paid for three to five years on an interest only basis and then the balance of the loan is due at the end of that period.

Upside Down (Negative Equity): When someone owes more on their car loan than what the car is worth at that time.

Vehicle Equity (Equity): This car finance terms is about what your car is worth after you deduct what you still own on the loan.

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