by Gauk
Tue, Oct 4, 2016 3:47 AM

The BIG Glossary of Car Loan Terms and Definitions

Annual Percentage Rate (APR)

An annual percentage rate (APR) is the annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

Auto Equity Loan

Often referred to as a ‘car title loan’, is a short-term loan in which the borrower's car title is used as collateral. The borrower must be the lien holder (i.e. own the car outright). Loans are usually for less than 30 days. If the loan is not repaid, the lender can take ownership of the car and sell it to recoup the loan amount.

Bad Credit

A bad credit is a qualification of an individual's credit history that indicates that a borrower carries a higher credit risk. A low credit score indicates bad credit, while a high credit score is an indicator of good credit.

Bill of Sale

A bill of sale is an official document, made by the dealer or seller, to record the sale of a vehicle.

Black Book

Black Book is a list of information that determines the price or value of a vehicle. This method bases the value of a vehicle on information gathered from wholesale vehicle auctions.

Blue Book

Typically known as Blue Book Value, this is simple the value of a vehicle as determined by Kelley Blue Book, Inc.


A co-signer is any person or party who uses their own credibility to help you be approved for a loan. If you do not pay on time, or if other issues arise, the matter becomes your cosigner’s responsibility as well as your own.


A term often used to mean credit history. Your credit history shows banks or potential lenders whether you are responsible enough to handle a loan.

Credit History

A record of a borrower’s responsible repayment of debts.


A creditor is a person or company who loans funds to other individual or business.

Damaged Credit

This is often called bad credit or poor credit. This is any credit score below the average score. This is the result of late payments, repossession, foreclosures or bankruptcy. Although it is not good to have a low credit score, you can still be approved for an auto loan with bad credit.

Debt-to-Income (DTI)

This is a ratio used to compare someone’s debt to the amount of income that they earn.


To default is to break a credit agreement, usually referring to not paying bills.


Delinquency is to miss or pay car payments late.


This is a term used to describe the loss of value in a vehicle as it ages and takes on typical wear and tear.


A disclosure is any information that is given to customers describing damage or incidents involving a vehicle that they wish to purchase.

Down Payment

A down payment is an amount of money required to lower the price of a vehicle before beginning monthly payments.


This is the funds paid on a loan. If your vehicle is more valuable than the remaining debt of your loan, you have positive equity; otherwise it is negative equity.

FICO Auto Credit Score

Credit reporting agencies are now using a report called your FICO auto credit score. It lists all of your past auto loan credit history that is required for a lender to make an accurate appraisal of your ability to be responsible with auto loans.

Finance Charge

A finance charge is the calculated total amount of interest that you will pay for an auto loan.

Grace Period

A grace period is a stretch of time from a payment due date. During this time, you can be late on your payment with no penalty.

Gross Monthly Income

This is the total income gained monthly, without any deductions such as child support, tax payments, etc.


Interest is a fee paid for the use of another party’s money. To the borrower it is the cost of renting money, to the lender it is the income from lending it.

Interest Rate

The annualized cost of credit or debt-capital computed as the percentage ratio of interest to the principal. The interest is agreed upon by both the lender and borrower prior to entering into a loan.

Late Payment

A late payment is simply a payment made after the due date dictated by the lender.


A lien is the creditor’s conditional right to ownership against the debtor’s asset that bars it from being sold or transferred to another party without paying off the debt owed to the creditor. A finance company has the right to take possession of a vehicle until the debt is paid in the situation of a lien.

List Price

The list price is the price suggested by the manufacturer. It is also known as “MSRP” or “Sticker Price.”

Net Income

This is a borrower’s total yearly income after subtracting federal and state taxes.

Payment-to-Income Ratio (PTI)

This is a calculation showing the percentage of a borrower’s income that they will need to fund a loan.

Proof of Income

A proof of income can be a bank statement or pay stub that proves the presence and value of a borrower’s income.

Proof of Residence

A proof of residence is any official document that shows the borrower’s current home or living space. A driver’s license is one of the more commonly used proofs of residence.


This is when a borrower re-negotiates their loan with a new lender. This can help to lower payments and sometimes even lower the total cost of a loan.


Repossession usually occurs when a borrower defaults on their loan and seems to have no intention of paying their debts. The lender will seize the vehicle.


Stipulations are any documents that a lender may require to approve a loan. These may be proofs of income, proofs of residence, etc.


Vehicle taxes are funds paid to the state or federal government to satisfy the yearly financial requirements to own that vehicle.


A fixed period for which a loan is issued. This is the amount of time in which the borrower agrees to pay off the debt to the creditor.


A title is a legal document that acts as proof that an individual owns a specific vehicle.

Title Certificate

This is an official document that can only be provided by your local DMV which states that you own the title to a particular vehicle. It is also called a pink slip.

Trade-in Value

This is the amount of money that a vehicle is worth when traded in at a specific dealership.


This term used to signify when a vehicle is worth less than the remaining debt on the vehicle loan.


published by Gauk