Installment Credit
Loans that have a fixed monthly payment for a fixed period of time. These items are the most important items on your credit report when you apply for an auto loan. Examples include auto loan and mortgages.
Interest rate
Annual interest rate for your loan or your lease.
Investment rate of return
Rate of return on investments. This is the return that you would make if you were to invest your down payment or security deposit instead of using it in your auto purchase or lease. The actual rate of return is largely dependant on the type of investments you select. For example, from January 1970 to February 2003 the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11%. Savings accounts at a bank pay as little as 2% or less. It is important to remember that future rates of return can’t be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment.
Fees
Fee charged for title transfer. Also include any other fees that may be due at delivery.
Finance Charges
A set percentage charged to the borrower by a lender. To calculate this subtract the total of payments from the amount borrowed.
Fixed Interest Rate
A fee charged for the use of borrowed money, based upon a set percentage rate.
Life Insurance
Credit life insurance pays off the balance of your loan upon your death.
Loan amount
The total dollar amount for this loan.
Loan term
The number of years over which you will repay this loan. The most common terms are 15 years and 30 years. If this loan has a “balloon” payment, the loan term will be shorter than the number of years to amortize the loan. For example, a loan with a 5-year term amortized over 30 years will have the same monthly payment as a 30-year loan with the same interest rate. The difference is the 30-year loan will have equal payments for 30 years. The 5-year loan will have equal payments for 5 years and then a very large, or balloon, payment for the remaining balance.
Loan length (months)
Total length, or term, of your original auto loan in months.
Lost interest on buy option
This includes any interest you would have earned at your investment rate of return on the buy option’s down payment and other fees. If the monthly payment for leasing is less than the monthly payment for buying, this also includes any lost interest due to the higher monthly payments. If leasing is more expensive than buying, your interest costs for buying are reduced by the amount of interest you would earn on the difference.
Lost interest on lease option
This includes any interest you would have earned at your investment rate of return on the lease option’s down payment, security deposit and other fees. Please see the definition for “Lost interest on buy option” for an explanation on how we account for any interest you might earn by having a lower monthly lease payment.
Loan to Value (LTV)
The amount financed relative to the published book value of the vehicle. Lower LTV’s have a better chance of approval. Lenders usually use Trade of Wholesale Value Book Value when calculating LTV.
Debt Ratio
How much you earn compared with how much you owe. The lower your debt ratio, the more disposable income you have.
Deficiency Balance
A deficiency is any amount you still owe on your contract after your creditor or lessor sells the vehicle and applies the amount received to your unpaid obligation. This also applies to lease turn-ins with over mileage charges.
Delinquency
Failure to make one or more installment payments by the due date(s).
Disclosure Statement
A statement of the total amount and cost of a loan, including the principal loan amount, interest rate and any additional finance charges or loan fees. The disclosure statement is contained within a bold box on the retail installment (finance) contract.
Disability Insurance
This insurance pays your monthly payment if you are unable to work due3 to illness or injury. There is normally a waiting period:
* 14 Day Retro -If you are disabled for 14 days before a claim is made. With a doctor’s certificate the first payment is retroactive to the day the disability took place. Payments cease when you return to work.
* 30 Day Retro – If you are disabled for 30 days before a claim is made. With a doctor’s certificate the first payment is retroactive to the day the disability took place. Payments cease when you return to work.
* 30 Day Elimination – If you are disabled for 30 days before a claim is made. With a doctor’s certificate the payments begin after the waiting period. Payments cease when you return to work.
Down payment
Amount paid as a down payment, which for leases is often called a capital reduction.
Open Credit
Loans that must be paid in full each month.
Other costs
Any other costs that should be included in the APR calculation.
Other fees
Any fee, other than a capital reduction or down payment, required to be paid at the close of the lease or loan. This may include license, title transfer fees, fees included in the APR calculation. etc.
Original loan amount
The original amount financed with your auto loan, not to be confused with the remaining balance or principal balance.
Origination fee
The dollar amount charged as a loan origination fee, which is included in the Annual Percentage Rate (APR) calculation. For many loans a 1% origination fee is common. For example: a 1% fee on a $120,000 loan would cost $1,200.
Balloon payment
This is the total final payment for all loans that are amortized over a period of time longer than the loan term. The balloon payment is total interest and principal balance due at the end of the loan term. (If the loan term is the same as the amortization, this amount is always zero.)
Book Value
The published valuation of a vehicle. There are three nationally recognized vehicle valuation services; NADA®, Kelly Blue Book®, and Black Book.
Buyers Order
This form is the legal contract between the Buyer and the Seller.
Buyers Guide
The Federal Trade Commission’s (FTC) Used Car Rule requires dealers to post a Buyers Guide in every used car they offer for sale. The Buyers Guide must tell you:
* Whether the vehicle is being sold “as is” or with a warranty.
* What percentage of the repair costs a dealer will pay under the warranty.
* That spoken promises are difficult to enforce.
* To get all promises in writing.
* To keep the Buyers Guide for reference after the sale.
* The major mechanical and electrical systems on the car, including some of the major problems you should look out for.
* To ask to have the car inspected by an independent mechanic before you buy.
Rate of depreciation
The rate of depreciation gauges how fast your new automobile will lose its market value. A high depreciation rate is about 20% per year, medium is 15% per year and low is 10% per year.
Residential Lease Agreement
Some Lenders require proof of your monthly rental or lease obligation. Often the landlords phone number is required for verbal verification
Residual percent
For leases, this is remaining value after the lease term expires. The higher this amount, the lower your lease payment will be.
Revolving Credit
Loans that do not have a fixed monthly payment nor a fixed period of time. Examples include credit cards and home equity lines of credit.
Taxable fees
Any additional fee that is subject to sales tax. This usually includes title transfer fees or any other fees that may be due at delivery and are taxable.
Telephone Bill
Some lenders require proof of home phone service. Many lenders are now accepting cell phone service as well.
