These terms are associated with the closing of your loan, including items contained within the finance contract.
Amortization
The reduction and retirement of a debt through periodic payments of interest and principal. To calculate an Amortization Schedule use our online calculator.
Accrued Interest
Interest which accumulates on the unpaid balance of the car loan principal.
Assignment
The transfer of your auto loan from one lender to another. Or from the automobile dealership to the lender.
Buyers Order
This form is the legal contract between the Buyer and the Seller.
Buyers Guide
The Federal Trade Commission's (FTC) Used Car Rule requires dealers to post a Buyers Guide in every used car they offer for sale. The Buyers Guide must tell you:
- Whether the vehicle is being sold "as is" or with a warranty.
- What percentage of the repair costs a dealer will pay under the warranty.
- That spoken promises are difficult to enforce.
- To get all promises in writing.
- To keep the Buyers Guide for reference after the sale;
- The major mechanical and electrical systems on the car, including some of the major problems you should look out for.
- To ask to have the car inspected by an independent mechanic before you buy.
Failure to make one or more installment payments by the due date(s).
Disclosure Statement
A statement of the total amount and cost of the car loan, including the principal loan amount, interest rate and any additional finance charges or loan fees. The disclosure statement is contained within a bold box on the retail installment (finance) contract.
Finance Charges
A set percentage charged to the borrower by a lender. To calculate this subtract the total of payments from the amount borrowed.
Fixed Interest Rate
A fee charged for the use of borrowed money, based upon a set percentage rate.
Insurance Products
When you're borrowing money to buy a car it's likely that you'll be offered insurance products.
- GAP Insurance - If your vehicle is totaled for any reason the amount your insurance company pays may be a whole lot less than the actual amount you still owe on your loan. GAP Insurance pays the difference. This product is highly recommended if you are adding negative equity to your new loan.
- Credit Life - Credit life insurance pays off the balance of your loan upon your death.
- Disability - This insurance pays your monthly payment if you are unable to work due to illness or injury. There is normally a waiting period:
- 14 Day Retro - If you are disabled for 14 days before a claim is made. With a doctors certificate the first payment is retroactive to the day the disability took place. Payments cease when you return to work.
- 30 Day Retro - If you are disabled for 30 days before a claim is made. With a doctors certificate the first payment is retroactive to the day the disability took place. Payments cease when you return to work.
- 30 Day Elimination - If you are disabled for 30 days before a claim is made. With a doctors certificate the payments begin after the waiting period. Payments cease when you return to work.
- Employment Insurance - Not available in every state. This insurance pays your monthly car loan payment if you involuntarily loose you job.
- Extended Service Contract - Covers the cost of unexpected auto repairs. Service contracts normally have a per visit deductible and most do not cover normal wear items such as break pads.
A flat rate of interest that is not compounded, generally expressed as an annual rate. One day of simple interest is calculated by: loan balance x interest rate = daily amount of interest 365 (days in a year).
Payment
Payments received are first applied to (collection) fees, then to accrued interest, and finally to the outstanding principal balance. To calculate a payment use our Car Loan Payment Calculator.
Principal
The amount borrowed, or the amount on which you pay interest and must pay back, which may increase as a result of capitalization of interest.
Principal Balance
The portion of the original loan, plus capitalized interest, which the borrower has not yet satisfied through payment or cancellation.
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