Finance Glossary

AMOUNT FINANCED The dollar amount of the credit that is provided to the buyer.

ANNUAL PERCENTAGE RATE (APR) The cost of credit for one year expressed as a percentage, including the dealer finance income. The APR is also known as the “finance rate” or the “contract rate.”

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BANK OR CREDIT UNION FINANCING (ALSO OFF-SITE FINANCING) A buyer gets a loan from his or her bank, credit union or other financial institution to pay for a new or used auto.

CO-BUYER An individual who assumes equal responsibility for the contract. The account history will be reflected on the co-buyer’s credit history as well as the buyer’s. For this reason, consumers should exercise caution if asked to be a co-buyer for someone else. Since many co-buyers are eventually asked to repay the obligation, people need to be sure that they can afford to do so before agreeing to be some one's co-buyer.

CREDIT APPLICATION When applying for credit, the form that a buyer submits to the dealership may require: name, Social Security number, date of birth, current and previous addresses and length of stay, current and previous employers and length of employment, occupation, sources of income, total gross monthly income, and financial information on existing credit accounts.

CREDIT INSURANCE There are two common types of credit insurance. Credit life insurance is optional insurance that pays the scheduled unpaid balance if the buyer dies. Credit disability insurance (sometimes called credit accident and health insurance) pays the scheduled monthly payments if the buyer becomes disabled. As with most contract terms, the cost of optional credit insurance must be disclosed in writing, and if the buyer wants it, the buyer must agree to it and sign for it.

CREDIT REPORT A report containing information about the buyer’s current and past credit obligations, payment record and data from public records (e.g. a bankruptcy filing obtained from court documents). For each account, the credit report shows the applicant’s account number, type and terms of the account, credit limit, most recent balance and most recent payment. The comments section describes the current status of the applicant’s account, including the creditor’s summary of past-due information and any legal steps that may have been taken to collect.

DEALER FINANCING A consumer buys a new or used auto from a dealership and obtains financing from the dealership rather than directly from a bank, credit union or other financial institution. The consumer enters into a contract with the dealership agreeing to pay the amount financed, at an agreed-upon finance rate, over a specified period of time.

DOWN PAYMENT An amount paid at time of purchase that reduces the amount financed.

FINANCE CHARGE The dollar amount that the credit will cost the buyer.

FIXED RATE FINANCING An annual percentage rate that remains the same over the life of the financing contract.

GUARANTEED AUTO PROTECTION (GAP) Optional protection that pays the difference between the amount the buyer owes on the auto and the amount the buyer receives from his insurance company if the auto is stolen or destroyed before the buyer has satisfied the credit obligation. In some cases, the buyer may be responsible for the insurance deductible.

LENGTH OF CONTRACT The total number of months the borrower has to pay the amount financed.

MONTHLY PAYMENT AMOUNT The dollar amount due each month agreed upon in the financing agreement.

NEGOTIATED PRICE OF AUTO The purchase price of the auto agreed upon by the buyer and the dealer.

NUMBER OF PAYMENTS The number of payments the buyer is required to make according to the financing agreement.