Glossary of Auto Buying Terms

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Click on one of these common car terms for a "plain English" explanation:

Acquisition Fee
A fee charged by your lending institution to cover the expenses incurred for things such as credit reports, insurance verification, and processing of the application. Back to Top
Amount Financed
The dollar amount of the credit that is provided to you by Provident Credit Union (or any other lender) to make your purchase. Back to Top
APR (Annual Percentage Rate)
The cost of a loan or other credit on an annual basis expressed as a percentage of the principal. This cost includes not only the interest on the loan, but may include other finance charges associated with obtaining the loan. Since Provident Credit Union does not have any such fees associated with obtaining an auto loan, the "interest rate" and the "APR" are equal. APR applies to vehicle loans but not to leases. Back to Top
Assignee
The bank, finance company or credit union that purchases the contract from the dealer. Back to Top
Base Price
The cost of the car without options, but includes standard equipment and factory warranty. This price is printed on the Monroney sticker. Back to Top
Capitalized Cost
The equivalent of the purchase price of a leased vehicle. Whereas a new car has a "price," a leased vehicle has a "capitalized cost" (the amount that accrues interest). Back to Top
Cap Cost Reduction
Any of a variety of ways to reduce the capitalized cost (see previous entry), such as a rebate, trade-in, or down payment. Back to Top
Captive Finance Company
A financial organization that is affiliated with an automotive manufacturer or distributor. General Motors Acceptance Corporation, or GMAC, is an example. (See Independent Leasing Company.) Back to Top
Closed-End Lease
A lease where the consumer is not liable for any changes in the vehicle's projected (residual) value at the end of the lease. The consumer is, however, liable for excessive wear and mileage. (See Open-End Lease.) Back to Top
Consumer Lease
A lease to an individual who intends to use the vehicle primarily for personal, family, or household use, rather than for business. A consumer lease can have a total contractual obligation of no more than $25,000. Back to Top
Co-Signer
The person who signs on a credit agreement in addition to the primary applicant. This person is legally responsible for repayment of the debt. Back to Top
Credit Insurance
Optional insurance that pays the scheduled unpaid balance if you die or scheduled monthly payments if you become disabled. As with most contract terms, the cost of optional credit insurance must be disclosed in writing and, if you want it, you must agree to it and sign for it. Provident Credit Union offers something similar to credit insurance called Credit Protection. Credit Protection is technically not insurance, but will cancel your required monthly payments and waive finance charges for a fixed period and/or cancel outstanding debt in the event of certain predefined occurrences (such as death, disability, or unemployment). See Provident's Supplemental Coverage page for more details. Back to Top
Credit Bureau(s)
A company that produces, maintains, and provides credit histories on consumers and businesses. Back to Top
Credit Protection
Optional protection available with your Provident Credit Union auto loan which will cancel your required monthly payments and waive finance charges for a fixed period and/or cancel outstanding debt in the event of certain predefined occurrences (such as death, disability, or unemployment). See Provident's Supplemental Coverage page for more details. Back to Top
Credit Report
A historical report on the type, amount, frequency, and repayment of credit used by consumers and businesses. Under the FACT Act amendments to the Fair Credit Reporting Act, consumers are entitled to see one free copy of their credit report in a 12 month period. You can request to see yours online by going to annualcreditreport.com. Back to Top
Dealer Discount
Any amount with which the dealer reduces the manufacturer's suggested retail price. Back to Top
Dealer Sticker Price
Usually on a supplemental sticker, Dealer Sticker Price is the MSRP plus the suggested retail price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP), dealer preparation, and undercoating. Back to Top
Depreciation
A vehicle's decline in value over a period of time. Back to Top
Disposition Fee
A fee charged by most lessors to cover the expense of preparing and reselling (or auctioning) a leased vehicle at the end of its lease. Also known as Termination Fee. Back to Top
Document Fee
A fee charged by some dealers to cover the cost of preparing lease documents. Back to Top
Down Payment
The initial amount you pay to the dealer or lessor to reduce the amount you need to finance on the vehicle. Back to Top
Extended Service Contract
Optional protection on specified mechanical and electrical components of the vehicle available for purchase to supplement the warranty coverage provided with the new or used vehicle. Provident Credit Union provides this in the form of Mechanical Breakdown Insurance (MBI). See Provident's Supplemental Coverage page for more details. Back to Top
FICO Score
Credit bureau scores are often called "FICO scores" because most credit bureau scores used in the US are produced from software developed by Fair Isaac Corporation (FICO). That score is calculated by a mathematical equation that evaluates many types of information that are in your credit report (see). By comparing this information to the patterns in millions of past credit reports, the score identifies your level of future credit risk.

While FICO scores are numbers used for comparison purposes, much more comprehensive credit reports are also used to determine credit worthiness. Back to Top
Finance Charge
The total cost of credit over the life of the loan. Back to Top
Fixed Rate Financing
The finance rate remains the same over the life of the contract. All Provident Credit Union auto loans come with fixed rate financing. Back to Top
GAP (Guaranteed Auto Protection)
Optional protection that pays the difference between the amount you owe on your vehicle and the amount you receive from your insurance company if the vehicle is stolen or destroyed before you have satisfied your credit obligation. See Provident's Supplemental Coverage page for more details. Back to Top
Independent Leasing Company
A financial organization that leases vehicles but is not affiliated with an automotive manufacturer or distributor. (See Captive Finance Company.) Back to Top
Index Rate
A published interest rate that is used to determine the actual rate charged with a variable rate loan, such as the "Prime Rate" as published in the Wall Street Journal. Back to Top
Initiation Fee
(See Acquisition Fee.) Back to Top
Invoice Price
The manufacturer's initial charge to the dealer. This usually is higher than the dealer's final cost because dealers receive rebates, allowances, discounts, and incentive awards. Generally, the invoice price should include freight (also known as destination and delivery). If you're buying a car based on the invoice price (for example, "at invoice," "$100 below invoice," "two percent above invoice"), and if freight is already included, make sure freight isn't added again to the sales contract. Back to Top
Lessee
The person or company leasing the car from the dealership. Back to Top
Lessor
The company that leases the vehicle to the consumer. Back to Top
Margin
The percentage added to the index rate to determine the final rate (a.k.a. the "fully indexed rate") of a variable rate loan. Back to Top
Monroney Sticker Price
See MSRP, below. Back to Top
MSRP (Manufacturer's Suggested Retail Price)
Also known as "sticker price" or "Monroney Sticker Price." MSRP is what the vehicle manufacturer determines is the value of the car at retail. In the majority of situations, the vehicle sells for less than the MSRP. However, it can sell for more than the MSRP if the vehicle is in particularly high demand. The "Monroney Sticker", a label on the car window, is required by federal law, and may be removed only by the purchaser. It shows the base price, the manufacturer's installed options with the manufacturer's suggested retail price, the manufacturer's transportation charge, and the fuel economy (mileage). Back to Top
MBI (Mechanical Breakdown Insurance)
A type of extended service contract offered by Provident, with a cost that is often half of what a dealer will charge for the similar coverage. See Provident's Supplemental Coverage page for more details. Back to Top
Monthly Payment Amount
The dollar amount due each month to repay the credit agreement. Back to Top
Negotiated Price of the Vehicle
The purchase price of the vehicle agreed upon by the buyer and the dealer. Back to Top
Open-End Lease
A lease where the consumer is liable for a shortfall between the vehicle's projected value (at lease inception) and its actual value (at lease end). (See Closed-End Lease.) Back to Top
Preparation Fee
A fee charged by the dealer or lessor to cover the incurred cost of readying the vehicle for pick up. Also known as "prep fee." Back to Top
Rent Charge
A lease's equivalent to a regular auto loan's interest. Back to Top
Residual Value
The estimated wholesale value of a leased vehicle at the end of the lease. It is used to determine your monthly payment. Back to Top
Single-Payment Lease
A lease where all payments are made in a single lump sum, rather than on a monthly basis. Generally, the consumer pays less interest this way than with a conventional lease. Back to Top
Terms
The agreed upon interest rate and repayment schedule arranged between creditor and borrower. Back to Top
Total Contractual Obligation
The sum of your down payment, trade-in, all monthly payments and any other fees, exclusive of deposits, taxes, and registration expenses. Back to Top
Trade-In Allowance
The value assigned to the vehicle you use as a trade. Back to Top
Truth In Lending Act
A law that requires a lender to disclose to borrowers certain types of payment information, interest rates, late payment information, and other terms of repayment. Back to Top
Variable Rate Financing
The finance rate varies and the amount you must pay each month changes over the life of the contract. The rate is a combination of the index rate and a previously disclosed margin. All Provident Credit Union auto loans come with fixed rate financing. Back to Top