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Acquisition Fee
A fee charged by some leasing
companies for originating the loan, just as mortgage lenders charge points as
an origination fee. This fee is often not specified in a contract, but rolled
into the capitalized cost when calculating monthly
payments.
Actual
cash value
The
amount of money that a broker or dealer has invested in the purchase and
repair of a used vehicle.
Add-ons
Also known as options. These are features added on to the car often by
the dealer such as a CD stereo, anti-theft system, detailing and undercoating.
Some items are purely decorative, known as "mop and glow," and do not add any
value to the car.
Amortization
The method of retiring a standard auto loan. In it, a steady stream of
constant payments pays down the loan principal and interest. The first
payments are comprised almost entirely of interest; the last almost entirely
of principal.
Amount due at lease signing
The total amount due before the consumer
can take delivery of a leased vehicle. It can include any security deposit,
title fee, capitalized cost reduction, monthly payments paid at signing and
registration fees.
Amount financed
The principal that is financed. It could include the cost of the car,
the cost of an extended warranty, the cost of credit life insurance and other
items rolled into the payments.
Annual Percentage Rate (APR)
A yearly rate of interest that includes
fees and costs paid to acquire the loan. Lenders are required by law to
disclose the APR. The rate is calculated in a standard way, taking the average
compound interest rate over the term of the loan, so borrowers can compare
loans. There is no APR in a lease; instead, the cost of money is expressed as
the money factor.
Balloon payment loan
A type of loan in which a consumer agrees
to pay a large, pre-determined amount at the end of the
term.
Base
price
The cost of a
car without options. This price includes standard equipment and the
manufacturer's warranty and is printed on the Monroney
sticker.
Blue
Book
Formally, it
refers to the Kelley Blue Book, an industry
guide dealers use to estimate wholesale and retail vehicle pricing. In common
parlance, "the blue book price" can actually refer to a price looked up in one
of the many guides to pricing. The books now come in a variety of hues, are
issued by many organizations, and are commonly available online or in the
reference sections of public libraries.
Capitalized (cap) cost
A leasing term that refers to the price of
the car. The lower the capitalized cost, the lower the monthly lease payment.
The cap cost is negotiable and can be reduced by a cash down payment, trade-in
or a manufacturer's rebate; it can be increased by the loan acquisition fee or
costs left over from a previous lease.
Captive finance company
A finance company related to a specific
dealer or manufacturer. Examples include General Motors Acceptance
Corporation (GMAC) and Ford Motor Credit Corporation
(FMCC).
Cash
Flow
A
measure that compares your income and your expenses
Closed-end lease
The most common type of car lease. The lessee may return the car at
the end of the lease term, pay any end-of-lease costs, such as the disposition
fee, and the lease agreement is over. In a closed-end lease, the lender
assumes the risk of predicting the value of the vehicle (its residual value)
at the end of the lease's term. Closed-end lease payments are somewhat higher
than open-end lease payments.
Consumer Leasing Act
A federal law passed in 1976 and amended in
1996 that spells out the requirements for disclosure of leasing costs and
terms. Generally, the law covers vehicles leased for personal or family use;
for periods in excess of four months; and for a total contractual obligation
of less than $25,000. The Federal Reserve Board publishes a consumer guide to
leasing that covers the leasing plans covered by the act.
Collateral
Property that you pledge to give up if you default on a loan.
For auto loans usually the vehicle is the collateral.
Compound Interest
An interest method that calculates interest on interest earned
in prior periods.
Credit
Bureau
A
private company that collects information about consumers from public records
and reports from banks and other companies
Credit
Report
A
report about an individual's payment history that is supplied by a Credit
Bureau. You can obtain a copy of your credit report from LoanApp.com.
Credit
life insurance
A
type of life insurance that helps repay the loan if the consumer becomes
disabled. It is optional coverage. When taken out, the cost of the policy is
sometimes rolled into the loan principal amount.
Customer Incentive
A special payment from the manufacturer to the customer to
promote sales of slow-selling models. Also called a "Rebate".
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