Annual Percentage Rate (APR)

The cost of credit as a yearly rate. The percentage results from an equation considering the total amount financed, the finance charges, and the term of the loan. Usually not the same as the interest rate.

Base Price

The cost of a car without options. Also called the “sticker price” or “MSRP.”

Dealer Holdback

An allowance paid by the manufacturer to the dealer to allow the dealer to purchase a vehicle for less than the invoice price.


Failure to make payments on time. This can lead to repossession.


Decline in the value of a vehicle due to wear and tear or any other reason.

Destination Charge

The fee charged by the manufacturer to ship the vehicle to the dealership. This fee is passed on to the customer, and is included on the sticker.

Down Payment

Money paid to make up the difference between the purchase price and amount financed. Down payments usually are 10 percent to 20 percent of the sales price.


The difference between the fair market value and current indebtedness also referred to as trade equity.

Finance Charge

The total dollar amount credit will cost.

GAP – Guaranteed Auto Protection

A type of auto insurance or waiver that car owners can buy to protect themselves against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle’s financing. This situation arises when the balance owed on a car loan is greater than the actual cash value of the vehicle.

Invoice Price

The price the dealer pays to buy a car from the manufacturer, exclusive of hold backs or other discounts.

Loan-To-Value Ratio

The relationship between the amount financed and the appraised value of the vehicle expressed as a percentage.

Monroney Sticker

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


Stands for Manufacturer’s Suggested Retail Price. It represents the manufacturer’s recommended selling price for a vehicle and each of its options.


The amount of debt, not counting interest, left on a loan.


A special payment from the manufacturer to the customer to promote sales of slow-selling models. Also called a “Customer Incentive.”


Property pledged to the creditor in case of a default on a loan.

Security Interest

The creditor’s right to take property or a portion of property offered as security.


The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

Title Certificate

The title certificate gives evidence of an individual’s ownership of an automobile.

Trade-in Value

The value of a used vehicle that you trade in to a dealership as part of a purchase.


Describes a situation where the balance owed on a loan is greater than the current value of a vehicle.

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