Finance Glossary

Finance Glossary or Finance Terminology

Balloon Payment
A balloon payment can make monthly payments lower on an auto loan, but require a large payment to be made at the end of the car loan.

Bill of Sale
A document prepared by the seller or dealership to record the details of a vehicle sale.

Black Book
Similar to Kelley Blue Book, Black Book is a collection of information about the value of a car, truck, or van. Black Book bases the value of the car on data collected from wholesale car auctions.

Blue Book
Also referred to as Blue Book Value, this is the value of a vehicle as determined by Kelley Blue Book, Inc.

Certificate of Title
A document provided by the Department of Motor Vehicles that proves ownership of a vehicle.

Cosigner
An additional party who assumes equal responsibility for an auto loan.

Credit
A term used to refer to your credit history, which may indicate whether you have the ability to repay an auto loan or not.

Credit Bureau
A company or agency that keeps record of your credit history. There is 3 Main Credit Bureau in the United States.

Credit History
A record of your financial relationships that allows lenders to determine your ability to repay loans.

Credit Scoring System
A system used to determine a customers creditworthiness based on statistical data and credit history.

Creditor
A lender that finances a loan.

Debt-to-Income Ratio
Also known as DTI, this ratio expresses the percentage of a borrower’s debt compared to their total income.

Default
Breaching a credit agreement, usually due to failure to repay based on the terms of the agreement.

Delinquency
Making car loan payments late or past the due date.

Depreciation
The gradual decline of a vehicle’s value due to age, wear and tear.

Destination Charge
A fee charged to a dealership by the manufacturer for shipping a vehicle to their location. This fee is part of the MSRP or base sticker price of a vehicle.

Disclosures
Any information about a vehicle’s history that is provided to a customer, which may include damages, repairs or title issues.

Down Payment
Money required to lower the amount financed on an auto loan.

Equity
Based on funds you have paid on a loan, if your vehicle is valued at more than what you owe, you will have positive equity in your car.

Finance Charge
The total amount of interest charges you will incur over the life of an auto loan.

Grace Period
A period of time from a payment due date in which you can be late without being charged a penalty fee.

Gross Monthly Income
The total monthly income of a borrower before any deductions have been removed such as insurance, child support and income tax.

Interest
Also known as finance charges, this is the amount a lender charges to provide a car loan to a borrower.

Interest Rate
Expressed as a percentage of 100, the annual rate of interest on an auto loan.

Joint Account
An account with two parties who share equal responsibility to repay the loan.

Late Payment
A car loan payment that has not been made on or before the due date.

Lien
Ownership of a vehicle by a finance company until a debt has been repaid.

Loan-To-Value Ratio
Also known as LTV, this ratio expresses the percentage of difference between a loan amount and a vehicle value.

MSRP
Manufacturer’s Suggested Retail Price. This price is the recommended selling price from the manufacturer and may change when options are added or removed from a vehicle.

Net Income
A borrower’s total income minus federal and state taxes.

Payment-to-Income Ratio
Also known as PTI, this ratio details the percentage of an individual’s income that an auto loan payment will require. Most lenders have a maximum PTI they will allow to avoid offering consumers loans they cannot repay.

Principal
The total amount owed on a car loan, not including interest.

Proof of Income
Also known as POI, this includes paystubs, employment verifications and/or bank statements to prove a borrower’s income.

Proof of Residence
Also known as POR, this includes utility bills, driver license, lease agreement or any other documentation that displays proof of a borrower’s residence.

Refinancing
Financing an existing car loan with a new lender. This process is usually used when a borrower wants to lower their monthly payment, interest rate or change their auto loan term.

Repossess
Repossession occurs when a customer defaults on an auto loan and has no intent to repay the debt. Auto finance companies reclaim the vehicle when a customer fails to meet their financial obligation.

Stips
Short for stipulations, these are documents that are required by a lender to fund a loan. Stips may include proof of income, proof of residence, proof of insurance and any additional information the lender may feel is necessary to approve the auto loan.

Tax
The amount paid when purchasing a vehicle to satisfy state and other government tax requirements.

Term
The amount of time during a loan from beginning to end, in which a borrower makes payments to repay the debt.

Title
A document that proves legal ownership of a vehicle.

Title Loan
A type of loan that uses the equity you have in your vehicle to lend you cash. The lender holds your title until the auto equity loan is paid in full.

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

Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage Rate to borrowers when purchasing a vehicle.

Upside-down
When a balance owed on a vehicle is more than the current value of that vehicle.