Auto Loan Glossary

When you're shopping for a new car and taking out an auto loan, it's important to know all the terms and definitions associated with it. It can be a difficult and confusing process if you're not knowledgeable in it. Use our auto loan glossary to study up on anything you may have questions about:

Amortization: Calculates the loan payment including interest on the outstanding balance to be paid off at the end of a fixed period.

Book Value: The value of a used car in a specific market area. A recognized wholesale appraisal guidebook provides guidance on the auto's value at any given time. Some of the common books include Black Book and Kelley Blue Book.

Cosigner: Another person who agrees to sign your loan and assumes part of the responsibility for the loan. This occurs when the original signer has poor credit and can not be approved for a loan by themselves.

Disclosures: A report on the vehicle’s history that is given to the person buying the car, it contains accidents and repairs.

Down Payment: The amount of money you pay up front that is taken off the total amount of the loan.

Interest Rate: The interest rate is a part of the annual percentage rate (APR) equation. Interest is the annual rate of return that the lender receives on the Principal of the loan.

Loan Term: This is the length of the loan, usually broken down into months (24, 36, etc.). The longer the loan term, the lower the monthly payments, although this could lead to a higher amount paid in the end.

Principal: The amount of the auto loan without the interest factored in. In other words, the amount you are financing and will be paying interest on.

Title: A legal document that provides proof of one's ownership of property.

Underwriting: The process of deciding whether or not to grant a loan to a potential applicant based on credit, employment, assets, and other factors.

Have a question we didn't answer? Check out our auto loan FAQ page.