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Auto Loan Glossary



To accumulate interest charges.

accrued interest
Interest on a loan, which has accumulated to date.

adverse action
The decision not to grant credit either in the amount, or according to the terms, requested.

adverse action notice
A document explaining the reason(s) why a credit application has been denied.

Products or services sold by dealerships that can be added on to the vehicle. Some examples include rustproofing, upholstery treatments, alarm systems, and extended warranties. Add-ons increase the price of the vehicle and, consequently, increase your monthly payments.

The reduction of debt by regular payments of principal and interest over a period of time.

To pay off a loan in regular installments over the loan's established term.

amount financed
The amount of credit provided by the financial institution.

ancillary charges
Supplementary services, coverage, or products which may be purchased by you in connection with the purchase of an automobile.

annual percentage rate (APR)
A measure of the cost of credit expressed as a nominal yearly rate. Lenders are required by law to disclose the APR, and the rate is used as a benchmark for various loans so that even simple interest and compound interest loans may be compared.

The value that assets gain over a period of time, as opposed to depreciation.

An initial statement of personal and financial information.

Things you own.

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The amount in an account or owed on a loan. The balance in a checking account is the amount of money in that account. The balance on a loan account is the amount remaining to be paid back.

base price
The cost of a car without options. Base price includes standard equipment, factory warranty, and freight. This price is printed on the MSRP sticker.

basis point
One hundredth of 1% in the yield of an investment, or .01%.

bill of sale
A document that shows the details of a sale. Your dealership will prepare a bill of sale to document your purchase.

Black Book
A publication of National Auto Research, and a standard reference used to determine the auction value of used vehicles.

Blue Book
A publication of Kelley Blue Book, Inc. and one of several standard references used to determine the value of used vehicles. The value is sometimes called the "Blue Book Value." A Blue Book typically reports wholesale value and retail value for each vehicle.

An individual who obtains credit from a lender with the agreement that it will be repaid, with interest, within a defined time frame.

An individual who purchases a vehicle, and is primarily liable for repayment of the loan.

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captive finance company
A separate company owned by an auto manufacturer to finance product sales.

cash price
The price at which a seller offers to sell a vehicle or service.

An individual who purchases a vehicle jointly with a buyer, and is jointly liable for repayment of the loan.

Property that you pledge as security for a loan that is given up if you default on the loan. The vehicle you purchased is the collateral for your Wells Fargo Auto loan.

collision insurance
Insurance covering damage to your vehicle resulting from a collision with another vehicle or object.

comprehensive insurance
Insurance covering damage to your vehicle caused by events other than a collision, such as flood, fire, hail, theft, or vandalism.

contractual obligation
The legal responsibility of a borrower to repay a loan.

An owner of a vehicle.

An individual who agrees to pay the amount due and to perform all the agreements stated on a loan or contract if the buyer fails to meet contractual obligations.

A loan granted by a financial institution to a consumer.

credit bureau
A private company that collects information about consumers from public records and reports from banks, creditors, etc.

credit history
A record of a consumer's open and repaid debts, as well as information regarding identity and public records, including judgments and bankruptcies.

credit report
A report about an individual's payment history that is supplied by a credit bureau.

credit score
An assessment used to evaluate the amount of risk involved in a credit transaction, established from the analysis of information provided in a consumer's application, the potential loan, and the consumer's credit report.

A financial institution that extends credit.

customer incentive
A special payment from the manufacturer to the customer to increase sales or reduce excess inventory. Also called a "rebate."

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dealer charges
Fees for services or products sold by the dealer in addition to the vehicle, including rustproofing and undercoating.

dealer invoice
The amount which dealers are invoiced or billed by the manufacturer for a vehicle, plus any optional accessories.

dealer sticker price
The factory sticker price, plus the suggested retail price of dealer-installed options and dealer preparation. Also referred to as "MSRP" or "list price."

An obligation resulting from borrowing money.

The deferral of payments to the end of the contract, causing an extension of the scheduled contract maturity date.

The failure to make a loan payment by a borrower at a scheduled time.

Department of Motor Vehicles.

The decrease in the market value of a vehicle over time. The amount of yearly depreciation is affected by variables including car condition, resale market supply and demand, and reputation of the manufacturer, model, or both.

destination charge
Vehicle shipping, freight, or delivery fees to the dealer, charged by the manufacturer or port of entry. This charge is usually passed on to the buyer without mark-up.

down payment
The difference between the loan amount and the purchase price, which is usually paid immediately upon purchase in the form of cash or an equity trade-in value.

due date
An established date each month on which a loan payment is due.

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electronic funds transfer (EFT)
A process allowing the lender or the borrower to transfer payments electronically between bank accounts or to a lender.

equity (vehicle)
The value of the vehicle less the loan amount.

extended warranty
A contract covering specified car-related problems after the expiration of the manufacturer's warranty.

A change to a contract that extends its maturity date.

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Fair Credit Reporting Act
A federal law that governs the exchange of credit information.

fair market value
The amount that a consumer is willing to pay for a vehicle.

Federal Deposit Insurance Corporation.

finance charge
The cost of credit to the consumer, expressed in a dollar amount.

finance company
An institution that finances purchases for consumers, or makes loans to consumers who make regularly scheduled payments toward a loan maturity.

finance contract
The legal document that contains disclosures, terms, and conditions of a loan.

fixed-rate loan
A loan in which the interest rate remains constant throughout the life of the contract.

franchised dealer
A company that is authorized by an automobile manufacturer to sell that manufacturer's products. Independent used car lots, automobile brokers, and leasing companies are not franchise dealerships. A franchise dealership normally has an affiliation with the manufacturer included in its name.

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gross income
Consumer or borrower income before tax.

Guaranteed Asset Protection (GAP)
A product that pays the remaining balance owed, less excluded amounts, on a loan after the payment of a total-loss insurance claim.

An individual who agrees to pay the debt of another.

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independent dealer
Independent used car lots, automobile brokers, and leasing companies that are not franchise dealerships. An independent dealership typically does not have an affiliation with an automobile manufacturer.

The systematic evaluation of a used car.

installment plan
A method of buying personal property on credit and making payments at regular intervals for a specific term.

A legal agreement with an insurance company that provides for reimbursement in the case of damage or theft to collateral. Wells Fargo Auto requires you to maintain insurance on the vehicle you purchase.

A sum paid or charged for the use of money or for borrowing money. Interest is expressed as a percentage rate for a period of time.

insurance premium
Payments made to an insurance company to cover the cost of insurance.

interest rate
The periodic charge expressed as a percentage for use of credit.

invoice price
The manufacturer's initial charge to the dealer, always including freight (destination or delivery) charges. The invoice price may not reflect the dealer's final cost due to rebates, allowances, discounts, and incentive awards the dealer may receive.

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Kelley Blue Book
A published value of a used vehicle in a specific market area.

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late fee
A charge assessed by a financial institution for payments received after a specific due date. These charges are typically governed by state laws.

Lemon Law
Refers to various state laws protecting consumers against the purchase of vehicles found to be persistently defective.

A form of financing in which you can use a vehicle for a period of time in exchange for making payments to the leasing company or creditor. In a lease, the leasing company continues to own the vehicle.

Financial institutions that provide credit to consumers with the understanding that the money borrowed will be repaid, with interest, on a defined schedule.

Money you owe.

liability insurance
Protection for a policyholder, up to an established figure, for amounts payable to another individual for personal (bodily) injury or property damage.

list price
The manufacturer's suggested retail price for a vehicle. Also referred to as "MSRP" or "sticker price."

A form of financing whereby you borrow money to purchase a vehicle.

loan balance
The amount owed on a loan, less the amount of payments made.

loan agreement
The written agreement between a borrower and a financial institution identifying the terms of the loan.

loan-to-value (LTV) ratio
A ratio determined by dividing the loan amount by the sales price or appraised value, expressed as a percentage. For example, with a loan amount of $8,000 and a sales price of $10,000, your LTV ratio would be 80%.

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The original producer of a vehicle.

manufacturer's rebate
A program offered directly to buyers by auto manufacturers to increase sales or reduce excess inventories.

manufacturer's suggested retail price (MSRP)
The vehicle sale price which appears on a label affixed to the car window showing the base price, manufacturer's installed options, the manufacturer's suggested retail price, plus manufacturer's freight or transportation charge, and fuel economy (mileage). The label is required by federal law and may not be removed by anyone other than the purchaser. The MSRP is the recommended selling price for a vehicle plus any optional accessories.

The difference between the invoice price and the price for which the dealer sells the car.

maturity date
The date on which the balance of the loan becomes due and payable.

Monroney sticker
The price sticker required by federal law for all new vehicles. The Monroney sticker lists all of the vehicle's options along with the manufacturer's suggested retail price (MSRP).

monthly payment
The amount of principal and interest you are obligated to pay each month under the terms of the finance contract.

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National Automobile Dealers Association. NADA provides counsel on legal and regulatory matters, represents dealers on Capitol Hill, develops research data on the automobile industry, and operates training and service programs to improve dealership business operations, sales, and service practices.

negative equity
When the amount owed on a vehicle is greater than the vehicle's worth.

net worth
Assets less liabilities.

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An instrument usually connected to the speedometer that records a vehicle's elapsed mileage.

optional equipment
Equipment not included in a vehicle's base price. Depending on the vehicle, optional equipment may include such items as air conditioning, automatic transmission, passenger-side air bags, or high-quality sound systems.

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The amount of principal and interest you pay each month.

pink slip
A vehicle's title certificate in California.

preparation charges
Charges imposed by a dealer for preparing a newly-purchased car for delivery to the buyer. Includes the cost of gas, verifying appropriate fluid levels, last minute touch-up cleaning, and so forth.

The amount of the original loan paid to the borrower by the creditor. Also called "amount financed."

principal balance
The unpaid balance on a loan.

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A consumer's ability to meet a lender's criteria for approving credit terms.

A price representing the consumer's cost on a vehicle.

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The amount of interest on a loan expressed as an annual percentage of the principal.

A special payment from the manufacturer to the customer to reduce excess inventories. Also called a "customer incentive."

The process of obtaining a new loan to replace an existing loan or lease balance.

Regulation Z
Enforcing the Truth in Lending Act, Regulation Z applies to lenders and requires disclosure of credit terms.

Retail Blue Book Value
The approximate value of a used car if sold privately or by a dealership. Kelley Blue Book is one of several standard references used to determine the value of used vehicles. The value is sometimes called the "Blue Book Value." Blue Books typically show a wholesale value and a retail value for each vehicle based on a number of criteria.

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salvage/branded title
A title designation used when an insurance company purchases a vehicle that has been severely damaged (i.e. totaled) and then resells the vehicle. Each state has different regulations on the sale of salvaged vehicles. 
Wells Fargo Auto does not finance vehicles with salvaged or branded titles. Vehicles returned to the manufacturer under the Lemon Law, or other similar state laws, will have a branded title.

secured loan
A loan that is secured by collateral.

Assets or personal property used as collateral to secure a loan.

Social Security number.

sticker price
The manufacturer's suggested retail price for a vehicle. Also called "list price" or "MSRP."

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A percentage of the final sales price that is required to be paid to local, state, and/or federal governments.

The period covered by a vehicle loan or lease, typically 24 – 84 months.

A certificate issued by the state Department of Motor Vehicles that proves ownership of a vehicle. Sometimes called a pink slip.

trade-in value
The amount that the dealership will credit you for the vehicle you provide as partial or full payment for another vehicle.

Truth in Lending Act
A United States federal law governing the disclosure of credit terms and costs that appear on a loan agreement.

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The process of verifying data and approving or declining an application for a loan.

A situation that occurs when the value of your vehicle is lower than the outstanding balance of the loan secured by the vehicle.

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vehicle identification number (VIN)
A 17-character code that uniquely identifies each vehicle manufactured in the world. A vehicle's VIN can usually be found mounted on the dashboard of the driver's side, visible through the windshield, or inside the doorjamb of the driver's door.

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A guarantee from the dealer or manufacturer that a car will perform as claimed.

Wholesale Blue Book Value
The approximate price that a dealership will pay to purchase a used vehicle. Kelley Blue Book is one of several standard references used to determine the value of used vehicles. The value is sometimes called the "Blue Book Value." Blue Books typically show a wholesale value and a retail value for each vehicle based on a number of criteria.

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Year to date.


Glossary definitions sourced from the following:
Barron's Dictionary of Finance and Investment Terms (fourth edition)
Barron's Dictionary of Business Terms (second edition)
Automotive Sales and Management (fourth edition)
Association of Finance and Insurance Professionals, Certification Course (third edition)

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