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Auto Finance Terms - In Hazelwood, MO

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If you’re planning on buying a car, it can be quite confusing. Here are some of the most common finance​ terms that you will come across when purchasing a car.​ If you have any other vehicle finance questions, don't hesitate to contact Gateway​ in Hazelwood, MO !​ 

A

Acquisition Fee – A fee charged by the dealer for beginning your lease. It essentially covers the cost of processing the lease.
 
Amount Financed
The total amount you're borrowing and are responsible for repaying in full, plus interest.

Annual Percentage Rate (APR) – This is the interest rate that you will pay on your loan. You will be charged a percentage of your loan each year for use of the funds.

Assignee
A dealership will sometimes sell a contract to a bank, credit union, or other financial institution, known as an assignee.

 

B

Balance - The remaining amount of a loan that still needs to be repaid. The balance will be reduced each time you make a monthly payment.

Balloon Payment/Loan - This is a loan that pays off only a part of the car during the loan term. You are then required to pay a large sum (the “balloon”) at the end of the term.

Base Price - Also referred to as the Manufacturer’s Suggested Retail Price or MSRP, this is the recommended lowest price for a vehicle without any additional features.
 
Bump - The difference between what a dealer pays for financing on a loan or lease, and what you pay on the loan or lease. It’s generally around one percent.

C

Capitalized Cost - The total amount being financed through the lease. It is the price of the vehicle (plus any extras that you added) minus the capitalized cost reduction.

Credit or Credit History - Your history of debt, which details how many credit accounts you have open, how often or how much you repay your debts, and how long your history is.

Credit Insurance – Insurance that repays the amount financed in the event that you die or become disabled. It’s usually optional and you must be offered it in writing, agree to the terms, and sign for it.


Credit Report - A report that includes information about you, such as your location, and your financial status, including how you pay your bills and history of bankruptcy. Consumer reporting agencies sell the information to lenders, employers, and others to determine how much of a risk you are when considering offering you a car loan.

Credit Score - A three-digit number assigned to you based on your Credit History that allows financial institutions such as a bank or credit union to quantify your creditworthiness.

Creditworthiness - Your ability to repay debt as proven by your Credit History.

D

Dealer Incentives – When a manufacturer wants a dealership to sell their cars, they offer the dealer rewards. These rewards often trickle down to the buyer.
 
Destination Charge – The amount of money that a dealer pays to have a vehicle transported from the factory to their dealership.
 
Dealer Invoice – The amount of money that a dealer pays to a manufacturer for a car.

Dealership Financing – Financing through the dealership. Many consumers prefer this method of financing as it is more convenient and brings more options to the table.
 
Default – Failure to meet the conditions of your loan. If you fail to make your payments, you are considered to be in default.
 
Documentation Fee – The fee charged by dealers for processing all of your paperwork. These fees are negotiable, and you should never pay more than $100.
 
Down Payment – The amount of money that a buyer pays up front in order to lower the amount of money owed on a loan.

E

Early Termination Fee – The penalty that you pay for ending your lease or loan early. You’ll typically be responsible for paying an amount that is close to the amount left that you owe for the car.
 
Excess-Mileage Charge – The penalty that you pay at the end of your lease if you go over the agreed upon amount of miles that you said you would drive. It’s better to overestimate your miles at the beginning of your contract.
 
Excess-Wear Charge – The penalty that you pay at the end of your lease if you return your vehicle in poor condition. You can also be charged for any modifications that you may have made to the vehicle (tinted windows, decals, etc.).
 
Extended Warranty – Also known as a “service contract,” this is a guarantee added on to the standard warranty. Be sure to read the conditions to properly understand everything included.

F

Finance and Insurance Office - Sometimes also called the Finance Department, this is the place in a dealership where financial negotiations are made when a potential car owner or lessee is interested in purchasing or leasing a vehicle.

Finance Charge -
The amount of  additional costs you will end up paying over the life of a loan due to interest.

Fixed Rate Financing – A type of financing where the interest rate remains static for the duration of the contract.

G

GAP – Known as Guaranteed Auto Protection, this optional insurance pays the amount owed should the financed vehicle get stolen or totaled before the amount is paid in full

I

Interest - An additional cost applied to a loan that is determined by a percentage. Essentially, this is how a lender makes money off of investing in a borrower.

Invoice Price -​ The amount of money a dealership pays for a vehicle when purchased straight from the manufacturer.

J

Joint Account - An account that is shared by two parties, who are equally responsible for the repayment of an auto loan.

L

Lease -​ Leasing a car is essentially equivalent to renting a car for a long period of time. At the end of the lease period, you can either buy the car or return it to the dealer.
​ 
Lease Extension -​ An agreement between the lessee and dealer to extend the lease for a set amount of months. There generally is no change in the monthly rate to extend a lease.​ 
​ 
Lessee - The individual who has temporary ownership of a vehicle according to a negotiated lease agreement. If you lease a vehicle, you are a lessee.
​ 
Lessor - The company that provides temporary ownership of a leased vehicle to a lessee. A dealership is the lessor in the majority of cases.

M

Mark-Up - The difference the amount of money paid by the dealership to the manufacturer for a vehicle and the sticker price of a vehicle as sold to you by the dealer.

Monroney Sticker - A sticker on the car window in a dealer’s lot that display the MSRP plus the destination charge, installed options, and gas mileage as required by federal law.

Monthly Payment Amount – The amount you pay towards the amount financed and accumulated interest each month according to your auto loan terms.

MSRP - An acronym for Manufacturer’s Suggested Retail Price.

N

Negative Equity – The difference between the amount owed on the vehicle and the market value. If you owe $10,000 and the vehicle is only worth $8,000, there is a negative equity of $2,000.

p

Payment-to-Income Ratio - A percentage of a borrower’s income that an auto loan payment will require. Oftentimes a lender will restrict borrowers to certain PTIs to increase the chances of a car buyer being able to repay the loan over time.

Prepayment Penalty - The financial penalty for paying off a loan before the agreed-upon loan term has been completed.

Pre-Qualify - To have a lender confirm that you are eligible for a loan. This does not mean that you have to accept the loan.
 
Principal - The amount of money that you borrow.

Proof of Income/Residence - Documents, such as paystubs, bank statements, utility bills, driver’s license, and other possible records, that prove that you earn a particular income or live at a certain location.

R

Refinancing - Financing an existing loan with a new lender, usually done to lower monthly payments, get better interest rates, or change the term of your loan.

Repossess - If you default on a loan and cannot repay your debt, your vehicle will be repossessed due to your failure to meet financial obligation.

S

Sales Tax - A percentage of the cost that’s added to the price of a vehicle according to specific state sales tax laws. When purchasing a vehicle, due to the large cost of a car, the sales tax can be a significant additional fee.

Service Charge - Additional charges that include costs incurred by the dealership to deliver your vehicle or by the financial institution when funding the loan.

Sticker Price - The price displayed on the window of the vehicle. You can almost always purchase the car for lower than this price.
 
Subprime Loan - Loans given to high-risk individuals or individuals with bad credit. These loans are often more than what the individual can actually afford.

T

Term - The negotiated length of time that you will repay a loan.

Title - A legal document containing information about a specific vehicle that proves you own the vehicle.

Total of Payments – The amount disclosed in the car loan that indicates how much you will have paid once the contract reaches maturity.

Trade-in Value - The value of a vehicle that you have traded into a dealership. This value can be put towards the cost of a new car.

V

Variable Rate Financing – A rarity in automotive loans, this is when the finance rate fluctuates, resulting in a change in the total of payments over the course of the car loan.
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