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Auto Loan Glossary

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Accrued interest

Interest on a loan that has accumulated to date.

Adverse action notice

A notice advising the customer that credit on the terms requested has been declined, which may include reasons for the adverse action and information about consumer reports.

Amortization

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

Amount financed

The amount of credit extended and listed on the sales contract or loan agreement.

Annual Percentage Rate (APR)

A term representing the total cost of credit. The APR of a loan is the total finance charge, including interest and fees, expressed as a yearly rate.

Applicant/Co-applicant

The person or people who apply for the vehicle loan as the owner(s).

Balance

The amount owed on a loan. The balance on a loan account is the amount remaining to be paid back.

Bill of sale

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

Borrower/Co-borrower

The person (or people) who obtains the loan and is responsible for fulfilling the terms of the loan agreement, which includes making payments.

Certificate of title

A document that shows ownership of a vehicle as well as any applicable liens.

Collateral

Personal property, such as a house, car, Wells Fargo Savings account, stock, bond, or CD, pledged as a guarantee that a borrower will repay a loan. For a Wells Fargo Auto loan, the purchased vehicle is the collateral.

Comprehensive insurance

Insurance covering damage to a 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 fulfill the terms of the loan agreement, including repayment of the loan.

Credit reporting agency

An organization that collects individual consumer credit information and provides credit reports to potential lenders, employers, landlords, etc., for the purpose of aiding in their decision-making process. The three major nationwide consumer reporting agencies are Equifax, Experian, and TransUnion.

Credit report

A report about an individual's creditworthiness that is supplied by a credit reporting agency. A consumer can request a free copy of their credit report from annualcreditreport.com.

Credit score

An evaluation of an individual’s creditworthiness developed from various sources of information, including application information and credit reports.

Dealer invoice

The price of a vehicle that is shown on the invoice that a dealer receives from the manufacturer of the vehicle. This price may not actually be the amount the dealer pays for the vehicle.

Debt-to-income (DTI) ratio

A borrower's total monthly debt payments divided by the borrower's gross monthly income. This is one way lenders measure a borrower's ability to manage monthly payments for a given loan.

Deferment

The moving of a monthly payment or payments to the end of the loan, which extends the loan maturity date. Interest continues to accrue during a deferment, which results in additional costs to the borrower.

Delinquent

When a borrower is late or overdue on a loan payment.

Depreciation

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.

Down payment

The money paid by a borrower toward the purchase price of the vehicle to reduce the amount of the loan. This may be made by cash or by trading in the borrower's current vehicle.

Due date

An established date each month on which a loan payment is due. The due date can be found on the loan agreement and on the monthly statement.

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Equity (vehicle)

The value of the vehicle that serves as collateral for the loan less the outstanding loan balance.

Extended warranty

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

Fair Credit Reporting Act

A United States federal law that governs the exchange of credit information.

Finance charge

The cost of credit to the consumer, expressed as a dollar amount.

Finance contract

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

Fixed interest rate

An interest rate that does not change during the life of the loan.

Franchised dealer

A dealership that is authorized by an automobile manufacturer to sell that manufacturer's products. A franchise dealership normally has an affiliation with the manufacturer included in its name.

Gross income

Income before taxes or other deductions.

Guaranteed Asset Protection (GAP)

An optional product that covers the "gap" between the amount owed on the loan and the vehicle’s value in the event of a total loss. Some exclusions apply, so it is important to review the coverage details to understand the limitations to GAP coverage.

Interest

Formal term for the amount a borrower pays to use money. Interest is expressed as a percentage of the amount borrowed. It does not include extra charges such as fees, which are included in the annual percentage rate.

Kelley Blue Book (KBB.com)

Public website that reports market value prices for new and used automobiles of all types. This website is not affiliated with Wells Fargo.

Late fee

A charge assessed by a lender when the borrower fails to make a required payment on time.

Lemon law

Federal or state law that protects consumers against the purchase of vehicles found to be persistently defective.

Lease

A form of financing agreement in which a person, called the lessee, can use a vehicle for a period of time in exchange for making payments to the leasing company or lessor. In a lease, the leasing company continues to own the vehicle.

Lien

A legal claim of ownership on a vehicle used as collateral for payment of a loan.

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, the LTV ratio would be 80%.

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Manufacturer's suggested retail price (MSRP)

The manufacturer's recommended selling price for a vehicle plus any optional accessories.

Maturity date

The final payment date of the loan if payments are made according to the loan agreement.

NADA

National Automobile Dealers Association. NADA provides consumers information about the value of vehicles and other automobile industry related services.

Negative equity

When the amount owed on a vehicle is greater than the vehicle's value. This situation is also referred to as "upside-down."

Payoff amount

Amount required to pay off the remaining balance on the loan.

Principal balance

The unpaid balance owed on a loan which does not include interest or any fees.

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Salvage/branded title

A note on the certificate of title that means a vehicle has been severely damaged and/or deemed a total loss by an insurance company that paid a claim on it. 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 a lemon law, or other similar state laws, will have a branded title.

Term

The amount of time to repay the loan disclosed on the loan agreement, typically 24 – 84 months for auto loans.

Trade-in allowance

The amount the dealer agrees to pay for a buyer's trade-in vehicle when the buyer is purchasing a car from the dealer.

Truth in Lending Act

A United States federal law that requires lenders to disclose the cost of the loan, among other information, which can be found in the loan agreement.

Underwriting

The process of evaluating an applicant’s creditworthiness in order to decide whether or not to extend credit to that applicant, including verifying data and approving or declining an application for a loan.

Vehicle identification number (VIN)

The vehicle's unique 17-digit identification number. This number can be found by looking at the dashboard on the driver’s side of the vehicle. It can also be found on the driver’s side door jamb of the vehicle or on the owner’s insurance card.

Warranty

An agreement from a manufacturer to pay for certain types of repairs during a specified amount of time. 

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