Glossary - Car Financing Terms

J

Joint Account:
A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

K

Kelly Blue Book:
This book contains the appraised value of all makes, models and years of vehicles. Appraisers will use this book to help determine the value of an automobile.

L

Late Payment:
A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

Loan:
That which one lends or borrows, especially a sum of money lent at interest.

Loan To Value Ratio (LTV):
It is the ratio of the home loan taken to the appraised value or the sale price, whichever is lower. Lower the LTV, better are the terms offered to the borrower.

M

MSRP:
Stand for Manufacturer's Suggested Retail Price. It represents the manufacturer's recommended selling price for a vehicle and each of its options.

Minimum Guaranteed Future Value (MGFV):
Based on the lowest amount your car is guaranteed to be worth at the end of your finance agreement, in Personal Contract Purchase agreements this amount – less any deposit you paid – is the amount that is deferred to the end of the agreement and can be paid as a lump sum balloon payment to secure the car.

N

Negative Amortization:
This happens when the interest due on the loan is more than the monthly payments. The balance unpaid interest is added to the balance of the loan. In negative amortization the loan of the borrower increases and thus he ends up owing more than the original loan.

Negative equity:
If you owe more on your finance agreement than the value of your car.

O

Open-End Credit:
A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.

Origination Fee:
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

P

Power of Attorney:
A legal document authorizing one person to act on behalf of another.

Point-of-Sale (POS):
A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.

Q

Quitclaim Deed:
The document that transfers the ownership of a title to property and is filed with the government. It often is used among family members and can be used to clear up a gap in the chain of title or inheritance questions.

R

Residual value:
The value of a used car after depreciation, mileage and its general condition has been taken into account.