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Auto Loan Glossary of Terms
Are you in the process of purchasing or refinancing a vehicle and have come across a term you don't understand. We put some of the most common terms and definitions here. So if you come across an unfamiliar term, look below for the term and definition.

Amortize: To pay off in regular installments over a loan term.

Appreciation: The value that an asset gains over a period of time, as opposed to depreciation.

APR (Annual Percentage Rate), Interest Rate: The yearly rate charged to a consumer to borrow the finance company's money. APR is usually expressed as a percentage. If your interest rate is 7.5%, you will pay $75 per $1000 borrowed.

Asset: The items of value that you own.

Basis Point: One hundredth of one percent in the yield of an investment.

Collateral: Assets that a borrower is obliged to turn over to a lender if unable to repay a loan. Usually, the vehicle is the collateral for a vehicle loan.

Default: Failure to meet a financial obligation.

Depreciation: The value an asset loses due to wear and tear or time.

Equity (Vehicle): The value of the vehicle minus the loan amount.

Interest: The amount charged by the finance company to borrow money.

Liabilities: The money you owe.

Lien: A legal claim on a piece of property until the debt or obligation is satisfied.

Liened Vehicle: A liened vehicle is a vehicle that has an outstanding loan obligation. The Certificate of Title for the vehicle lists the individual(s) as the registered owner with the lender listed as the lienholder.

Lien-Free Vehicle: A lien-free vehicle is owned outright by an individual(s), listing that individual(s) on the title as the registered owner. There is no outstanding loan obligation on a lien-free vehicle.

Loan-to-Value Ratio: The relationship between the amount of the loan and the appraised value of the vehicle, expressed as a percentage.

Monthly Payment: The principal and interest paid on a monthly basis over the life of the loan.

Negative Equity: When the amount you owe on a vehicle is larger than what the vehicle is worth.

Net Worth: Your assets minus your liabilities.

Principal: The amount borrowed.

Simple Interest: A method of allocating monthly loan payments between interest and principal. The amount of your payment allocated to interest is calculated based on your unpaid principal balance, the interest rate on your loan, and the number of days since your last payment.


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