Auto Financing Glossary

Before walking into a dealership, or applying for a car or truck loan,
take the time to learn the following terms.

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Additional Products or Services

Products or services that the dealer may offer in a sale, financing, or lease. Examples include extended service contracts, credit insurance, and guaranteed auto protection. These products and services are optional. Get the costs and terms of any additional products and services in your contract, and sign only for the specific products you want.

Auto financingAmount Financed

The dollar amount of the credit provided to you

Annual Percentage Rate (APR)

The cost of credit expressed as a yearly rate. You may be able to negotiate this figure. Factors that influence your APR: Your credit history, current finance rates, dealers’ compensation, competition, market conditions, and special offers are among the factors that affect your APR. Try to negotiate the lowest APR just as you negotiate the price of the vehicle.


The bank, finance company or credit union that buys the contract from the dealer.

Credit Insurance

Optional insurance that pays the scheduled unpaid balance if you die or the scheduled monthly payments if you become disabled. The cost of optional credit insurance must be disclosed in writing. If you decide you want it, you must agree to it and sign for it.

credit score affects financingCredit Report

A document that includes information on where you live, how you pay your bills, and whether you have been sued, or have filed for bankruptcy. Nationwide consumer reporting agencies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

Credit Score

A number that reflects the credit risk you present based on information in your credit file. The better your history of credit, the higher your score. Your credit score may be used to help decide the rate and other terms you are offered.

Down Payment

The initial amount you pay to reduce the amount you finance.

Extended Service Contract

Optional protection on specified mechanical and electrical components of the vehicle that may be available for purchase. It supplements any warranty coverage provided with the vehicle.

Finance Charge

The cost of credit expressed as a dollar amount. You may be able to negotiate this figure.

Fixed Rate Financing

Financing where the finance rate stays the same over the life of the contract.

Guaranteed Auto Protection (GAP)

Optional protection that pays the difference between the amount you owe on your vehicle and the amount you would get from your insurance company if the vehicle is stolen or destroyed before you have paid off your credit obligation.

Monthly Payment Amount

The dollar amount due each month on the loan, finance contract, or lease agreement.

new car payment amountNegative Equity

The amount owed on a vehicle above its market value. For example, if your credit payoff is $18,000 and your vehicle’s market value is $15,000, you have negative equity of $3,000.

Negotiated Price of the Vehicle

The purchase price of the vehicle agreed on by the buyer and the seller. The price should reflect any rebates, discounts, or special offers that you can get at the dealership if you meet certain qualifications, which should be clearly disclosed..


If you do not make timely payments on a vehicle, your creditor may have the right to repossess it without going to court or warning you. If you have a co-signer, and he/she also defaults in payments, your car may be repossessed. This impacts your credit score/rating.

Total of Payments

As disclosed on a loan or finance contract, the total amount you will have paid after you have made all the payments as scheduled. For a lease, this is the amount you will have paid by the end of the lease.

Variable Rate Financing

Financing where the finance rate varies and the amount you must pay changes over the life of the contract. This is not typical in vehicle finance transactions.

Wholesale Rate (Buy Rate)

The finance rate at which an assignee buys a retail installment sale contract from a dealer.