APR – Annual Percentage Rate is a standardized interest rate calculation allowing a comparison of interest costs of one loan to be compared with the interest costs of another loan.
Buy Rate – The Buy Rate is the APR that the finance company offers to finance a customer with a certain credit profile. The Buy Rate is seldom disclosed to the customer and may be “marked up” by the Dealership.
Credit/Life/Disability Insurance - Credit/Life/Disability insurance offers full or partial payment of certain remaining loan amounts due under specified circumstances. Specified circumstances, including limitations, should be carefully reviewed prior to purchase.
Credit Reporting Agencies – The three major credit reporting agencies include Equifax, Experian, and TransUnion.
Credit Score – A credit score provides a measurement of a customer’s default risk by taking into account various elements in their financial history. A FICO credit score is only one of many credit scores available.
Customer Rebates – Customer Rebates are advertised and are available directly to the Customer.
Dealer Invoice – Dealer Invoice is the “base” cost of a vehicle to the dealer. However the actual “net cost to dealer” can be less as a result of Holdback, advertising funds, factory-to-dealer rebates/incentives, and other funds received from the manufacturer.
Dealer Rebates – Dealer Rebates are generally not advertised and are only available to customers indirectly through the Dealership.
Direct Lending – Direct lending refers to a loan that is originated by the lender and negotiated directly with the borrower.
Extended Warranty Contract – An extended warranty is an agreement that adds coverage to a manufacturer’s standard warranty coverage. The extended warranty contract may provide the same, more, or less coverage than the manufacturer’s standard warranty and therefore should be carefully reviewed.
FICO credit score – FICO credit scores are developed by Fair Isaac Corporation. FICO credit scores range from 300 to 850 with a median score of about 725.
GAP Insurance – GAP insurance provides coverage in addition to a customer’s standard auto policy ensuring the complete payoff of a loan in the event that the vehicle is a total loss due to either accident or theft. A customer’s standard auto insurance policy typically only pays the current value of the vehicle which could be less than the remaining loan balance. Check with your insurance provider prior to purchase.
Holdback – Holdback is money the dealership receives from the manufacturer. Holdback is often 2% or 3%.
Indirect lending – Indirect Lending refers to a process whereby a loan is originated by a third party (such as a dealership) and subsequently sold to a lender. Thus the loan to the borrower is indirect.
Less than perfect credit – A lending industry phrase that refers to customers with minor to severe credit risk.
MSRP – Manufacturer’s Suggested Retail Price. The MSRP is commonly referred to as the “sticker price”. Negotiations of purchase price should ordinarily be based on Dealer Invoice.
Maintenance Agreement – A maintenance agreement generally provides coverage for certain scheduled, or routine, maintenance items ordinarily the responsibility of the vehicle’s owner. Specific coverage should be carefully reviewed prior to purchase.
Net cost to dealer – The net cost to the dealer is the Dealer Invoice minus Holdback, advertising funds, factory-to-dealer rebates/incentives, and any other amounts received from the manufacturer.
Non prime customer – A customer with less than perfect/excellent credit and some, but limited credit risk is referred to as non prime or near prime. The definition of non prime customers can vary from lender to lender. Some lenders do not offer a distinction between non prime and sub prime and as a result refer to non prime customers as sub prime customers.
Pre-computed interest – (See Rule of 78s)
Prepayment penalty – Any amount paid in excess of principle and interest calculated on a simple interest basis to retire a loan.
Prime customer – A customer with an excellent credit rating is referred to as prime. The definition of prime customers can vary from lender to lender.
Rule of 78s interest – Rule of 78s is a method of calculating interest on loans that favors the lender at the expense of the borrower. Should the borrower elect to payoff the loan early, there is an inherent prepayment penalty in the calculation (when compared with a simple interest calculation method). Basing interest on Rule of 78s has been banned in some but not all states.
Service Contract – See Extended Warranty Contract
Simple interest – Simple interest is a method of calculating interest on loans that is based on the actual amount owed each day. This method of interest is considered a fair method that favors neither the lender nor the borrower.
Specialty finance lender – A lender that specializes in lending to individuals with less than perfect credit, including non prime and sub prime customers.
Sub prime customer – A customer with less than perfect credit and moderate to severe credit risk is referred to as sub prime. The definition of sub prime customers can vary from lender to lender.
Warranty Contract – This could refer to a manufacturer’s warranty or a warranty provided by a third party. See also Extended Warranty Contract above.