Auto Finance Reference

Adjustable-rate loan (or variable rate loan) - A loan on which the applicable interest rate fluctuates based on another interest rate (such as prime), or an index of rates.

Annual Percentage Rate (APR) - The cost of borrowing money, stated as an annual percentage of the amount owed.

Balloon - A loan whose repayment schedule includes a final payment which is substantially larger than the previous one.

Collateral - An asset pledged as security for a loan (such as a car or boat).

Co-signer - A 'secondary borrower' who signs a contract, promising to pay the loan as agreed if the primary borrower does not.

Credit Bureau - A private agency that accumulates and distributes information regarding the credit histories and payment habits of consumers. There are three major agencies in the US - TRW, Equifax, and TransUnion.

Credit History - An individual's record of credit, payment practices, and public judgments.

Credit Rating - A creditor's estimation of the probability that you will meet your credit obligations as agreed, usually calculated using a computer-generated scoring model.

Credit Scoring - A mathematical formula which calculates your credit rating by analyzing several variables and comparing them against a population of similar individuals.

Creditor - A business or individual which lends money.

Default - Failure to fulfill the terms of a contract or agreement.Usually results in the collateral being repossessed.

Documented Vessel - Vessel with tonnage measurements of at least 5 net tons which makes the vessel eligible for federal documentation. (Tonnage refers to the Internal displacement of the vessel with one register ton equal to 100 cubic feet.) While it's difficult to generalize, most power boats over approximately 28ft LOA will be documentable, and most fixed keel sailboats of 26ft LOA will qualify. You must, however, be a US citizen to qualify for federal documentation with the US Coast Guard.

Down Payment - The initial payment paid 'up front' on a credit purchase. This payment reduces both the total amount borrowed and the amount of finance charges paid.

Due Date - The day of the month on which a loan payment is due to be paid.

Equal Credit Opportunity Act - A federal act which makes it illegal for a lender to discriminate against potential borrowers on the basis of sex, marital status, race, color, religion, national origin, age, or the fact that all or part of the applicant's income is derived from any public assistance program.

Fair Credit Reporting Act - A federal act that regulates the use and distribution of credit reports.

Finance Charge - The total dollar amount it costs you to borrow money. These charges may includes interest, service and transaction fees, and premiums paid for credit life insurance.

Fixed Interest Rate - a constant interest rate charged on a loan which remains in effect throughout the life of the loan.

Installment Credit (or closed-end credit) - A loan that requires repayment to be made in equal payments at pre-established, periodic intervals, usually monthly. Examples would include car loans and RV loans. The lender usually retains possessions of the title until the debt is paid in full.

Installment Loan - A loan with equal periodic payments.

Interest - A charge for borrowing money that is usually a percentage of the amount borrowed.

Lease - Contract allowing consumers to pay for a pre-determined amount of time that they will utilize a vehicle, boat or RV. The lending institution retains ownership and the lessee has an option to purchase or relinquish the asset at the end of the lease term.

Lien - A legal claim on property or collateral which allows the creditor to hold or sell the property if the contract is not satisfied.

Markup - An amount added to the cost of a vehicle which determines the selling price.

MSRP - Manufacturer's Suggested Retail Price. The retail value of the car which is estimated by the vehicle's manufacturer and posted on a window sticker. Also called the sticker price.

Net Worth - The difference between the assets owned by an individual or business and the outstanding liabilities owed.

Periodic Rate - The interest rate charged on a loan for a specific period of time, usually monthly.

Prepayment Fee - A charge assessed by some lenders for the early payoff of a loan.

Prime Rate - The interest rate commercial banks charge their most creditworthy customers. The prime rate influences the interest rate charged by all lending institutions on consumer loans.

Principal - The balance of a debt, excluding interest.

Refinance - Revise a loan's payment schedule to extend payments or reduce the interest owed.

Repossession - Condition in which the lender takes possession of collateral (such as a boat or car) for nonpayment of the loan.

Simple Interest - Interest calculated on the principal only.

Sticker Price - See MSRP.

Term - The length of time that money is borrowed. (The time between when a loan agreement is signed and when the loan is completely repaid.)

Truth in Lending Act - A federal law that requires lenders to disclose the annual percentage rate, the finance charges, the amount financed, the total of payments, and the total sale price of the lending agreement.

Undocumented Vessel - A boat which is not documentable which must be registered with the state in which the boat is moored or kept. This would be accomplished by state titling or UCC filing. Please contact a dealer in your area, the Dept. of Motor Vehicles or the appropriate office in your state for additional information.