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Basic Auto Loan Dictionary

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As you apply for an auto loan, it’s important to be familiar with the common terms used in every auto loan transaction. We have the definitions of some of the terms below.


Amount Financed

Amount financed refers to the amount of credit provided to the borrower. It is also known as loan amount or principal.



APR stands for annual percentage rate. It is the total cost of the loan expressed as an annual rate. It is not the same as the interest rate charged monthly because it includes other fees involved in the loan as wells as the monthly rate. We recommend making the APR your point of comparison when comparing auto loan quotes.



Collateral is an asset used to secure a loan. Auto loans, which are secured loans, are secured by the vehicle being financed.



A cosigner is someone who signs the loan agreement with the primary borrower. This person is willing to take on the payments in the event the latter fails to make them.


Credit History

The credit history is a section in a credit report that shows a consumer’s activities in his or her past and current credit accounts. It also shows public records like court rulings and bankruptcies.


Credit Score

It is a three-digit figure that indicates the overall credit standing of a borrower. Lower credit scores indicate bad credit while higher credit scores indicate good credit.


Credit Report

The credit report, provided by credit bureaus, is a document that contains a record of a consumer’s payment history. Lenders review your credit report to assess your creditworthiness.



This refers to the devaluation of the vehicle.


Down Payment

It is the required initial payment, ideally 20% of the purchase price, as you buy the vehicle. Putting more money down is recommended to acquire lower interest rate and lower monthly payment.


Early Payoff

This is when a borrower completes the payments for the auto loan ahead of the schedule. While it is a smart move to save more money, it sometimes is subject to penalty.


Fair Credit Reporting Act

This is a federal law that regulates how consumer credit information is exchanged.


Interest Rate

This is the monthly rate charged and added to the monthly payments for the cost of providing credit.


Loan Agreement

Also known as credit agreement and loan contract, loan agreement is a legal document that binds the borrower and the lender into the terms and conditions of the deal. It’s important to review this written agreement before signing on the dotted line to make sure everything is consistently, clearly and accurately stated in print.


Loan Term

This refers to how long you are going to repay the auto loan. It is also called length of the loan, life of the loan, or repayment period. Common loan terms range from 24 to 96 months.



Repossession happens when a borrower misses several payments. In this case, the lender can exercise its right to take back or repossess the vehicle.


Sales Tax

A percentage of the purchase charged as city and state laws require. Sales tax rates vary. Here in the city of St. Louis, consumers are charged 8.679% sales tax as of October 2013.

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