We believe it is important for you to understand the “lender talk.” At OpenRoad Lending, we ensure that our customers know exactly what is going on, what to expect throughout the car financing process, and what we offer in the most simplest of car loan terms.
Interest that builds on the unpaid balance of the loan that generally lowers as a person makes loan payments on time. Interest is applied (earned) each day in most lending systems, and between when it is earned and paid (when a person makes his or her payment) is the amount of interest accrued. So, if a person has a loan with a $10,000 balance and an interest rate of 6%, every day the lender earns interest of $1.64 ($10,000 multiplied by 6% divided by 365 days in a year). By the time the person makes the payment in 30 days, a month’s interest has been accrued. If a person were to pay off the loan 15 days into the month, the payoff amount would include the amount of earned or accrued interest, which would be $24.60 ($1.64 multiplied by 15 days).
The total price of vehicle being leased after any manufacturer rebates, discounts, the cost of down payment, and dealer profit. Capitalized cost is the leasing term for the amount financed, or lease balance.
The gradually reducing of a loan by an individual paying monthly loan amounts to cover the principal and interest within a scheduled time period. While an individual’s monthly payments are the same each month, a different amount goes to interest and principal. Interest is based on the loan balance, so in the beginning when an individual’s loan balance is the highest, more of the payment will be allocated to interest. For example, if the individual signed an auto loan for $15,000 to finance the purchase of a used car with a term of 72 months and an interest rate of 9%, his or her monthly payments will be $270.38 and his or her first monthly payment will be $112.5 in interest and $157.88 in principal that will reduce the loan balance. The last payment will almost entirely be principal because the balance is almost zero.
A flow of fixed payments made over a specific time period.
“Annual Percentage Rate” is the yearly interest rate on a loan including fees.
Transferring of a loan between lender to lender.
A large lump sum payment deferred till the end of the loan or lease term to help reduce the monthly payment amount. The payments are lower because the loan does not fully amortize the full loan amount, only the difference between the original loan amount and the amount of the balloon payment. The interest cost will be higher because there is a higher balance outstanding throughout the term of the loan.
When an individual files for bankruptcy, his or her assets are turned over to a trustee to pay off the remaining debt. The protocol for bankruptcy varies state to state. Bankruptcy can be a chapter 7, where the listed debts are wiped out, or chapter 13, where the trustee reschedules the amount of debt payments and may reduce the amount of the debt. There is a period between when the bankruptcy is filed and when it takes effect or ‘discharged.’ Most auto lenders will not lend during this period of time, and the majority of auto lenders will require at least 12 months after the bankruptcy discharge before providing a loan that is often associated with the key word bad credit auto loans.
The cost of a vehicle that comes with the basics in standard equipment, warranty, and shipping charges.
A document provided by the seller (or dealer) that shows the name of the car buyer and the purchase price of the vehicle for the purpose of calculating taxes.
Just like it sounds, buy-here, pay-here is when the selling dealer also provides the financing along with the car purchase.
Also known as vehicle or auto finance, refers to borrowing money for the purpose of purchasing a car.
A legal document issued by the state that shows the registered new owner’s name, address, and if there is a loan, the lien holder or lender’s name and address. Different states have different policies; however, in many states, the lender retains the original certificate of title until the loan has been paid.
An individual that signs onto a loan with the borrower (the car buyer), and who is responsible for making loan payments if the borrower does not.
The ability of an individual to borrow money, which is based on their financial history’s depth (the oldest loan), breadth (how many loans and credit accounts), high credit (the largest loan he or she has had experience with), and performance (if the has individual paid on time, and if he or she hasn’t, the severity of the delinquency which may include judgments and liens). Most lenders offering car loans will want to see someone with credit history of at least 3 years, and a high credit of at least $5,000. The other areas reviewed for most auto loans are employment (income and time on the job), and down payment (the more the better for credit).
There are three large credit bureaus in the US, Experian, Equifax, and TransUnion. They all operate in basically the same way. Before a person opens a loan, lenders, utility companies, credit card companies, mortgage companies, and other providers of credit will report to the bureau about how much the loan is for, what the term of the loan is, and what type of loan it is. After a person opens the loan, the lender will send a file to the credit bureaus monthly that reports if he or she has been making payments on time or if he or she is late. Over time, all of the credit related activity is received by the bureaus to create a credit history file. When a person fills out an application for credit, he or she is most likely giving the prospective lender the ability to access his or her credit file that way the lender can make a determination of credit worthiness.
A report that shows an individual’s borrowing.
A number calculated by a credit bureau’s formula that summarizes a person’s credit profile. Credit scores help determine a person’s creditworthiness to lenders.
In regards to auto loans, refers to money owed to lender.
An individual fails to meet the terms of the loan established between the borrower and the lender.
An individual fails to make monthly payments by a due date negotiated between the borrower and the lender.
The reduction of an asset’s (car’s) cost over time due to wear and tear, use, destruction, and/or obsoleteness. This is a significant cost of the car, and not all cars depreciate at the same rate.
A standard dollar amount applied by lenders to penalize individuals that cancel their lease before the term has ended.
The positive difference between the car value and the outstanding loan balance. Negative equity is when the loan balance is more than the value of the car.
Abbreviation for “Finance & Insurance” department of a car dealership where the dealers try to sell car loan financing, insurance, and other products to the car buyer.
The rate of interest remains the same throughout the loan term without any influence from the base rate.
An automobile dealer that is licensed (franchised) to see a certain type of new vehicle based on the brand, such as Chevrolet, Ford, Honda, etc.
“Guaranteed Asset Protection” is a form of insurance that covers the borrower when his or her car is totaled or stolen, and the borrower’s primary insurance company only covers the cost of the vehicle, not the loan balance. For example, if a person’s car is stolen and the insurance company says they will pay for the replacement value of the car, but its replacement value is less than the loan outstanding, the GAP insurance policy would pay the difference. If the stolen car’s replacement value is $15,000 and the loan balance is $21,000, the GAP policy would pay the difference, or $6,000. Also, there can be restrictions on the amount paid by the GAP policy.
An individual’s income (wages, investments, etc) before taxes and expenses.
A person who does not have a franchise to sell new cars from one or more of the new car manufacturers, but generally sells used cars. Some independent dealers are owned by a franchised dealer.
A percentage charge collected by the lender for the loan.
The price the dealer paid the manufacturer to obtain the vehicle, generally lower than the MSRP, or “Manufacturer’s Suggested Retail Price.” The difference between the invoice amount and the negotiated price of the car is the dealer’s profit, unless the manufacturer has a special dealer rebate. If there is a dealer rebate or incentive, the dealer’s cost of the vehicle being sold can be below the invoice amount.
A contract that allows a person to use a vehicle for a fixed period of time and therefore only pays the depreciating value for the vehicle during that time it is in use, plus the interest cost that is based on a money factor that converts to an interest rate equivalent. At the end of the term lease, the car is either returned to the lender or bought by the borrower at a depreciated value.
A loan secured with an asset (car) for the lender. This is another way for a lender to feel secure in getting the loan paid back. Since the car is collateral, the lien borrower cannot sell the car without one hundred percent of the proceeds going to the lender who holds the title.
A lender securing a loan with a lien. The lien holder has the right to sell the borrower’s property (or car) if he or she fails to meet the terms of the loan contract such as not paying on time or defaulting on the loan.
A sum of money that is given from one person, the lender, to another, the borrower, for a certain amount of time. During this amount of time, the borrower will be responsible to pay back the lender in full and with interest.
A vehicle that surpasses the Luxury Car Tax Threshold in regards to sale price.
The lease equivalent to an interest rate for a loan.
“Manufacturer’s Suggested Retail Price” is the price at which the manufacturer recommends the vehicle be sold at. It is also known as the sticker price, or “Monroney” for the US Senator that created the bill to require the suggested price to be posted on every new vehicle.
The amount of money borrowed originally from the lender without interest or extra fees applied.
When an individual takes out a new loan to pay off and replace the existing loan, usually to get a lower interest rate or to skip a monthly payment.
When a vehicle is reclaimed by the creditor, since the borrower defaulted on the loan or did not meet the negotiated requirements of the loan.
The value of a used car with the depreciation, mileage, and condition factors included.
A loan in which the borrower pledges an asset (such as a car) as collateral for the loan.
A person with bad or limited credit from a lender’s perspective that will have a higher chance of defaulting on his or her loan obligation in comparison to a person with good credit.
The length of the loan or lease contract in regards to time, generally 48, 60, or 72 months.
A process conducted by the lender to verify the borrower’s provided data in order to approve or deny the borrower for the loan.
When the vehicle’s value (usually based on the Kelly Blue Book value) is lower than the outstanding loan balance.