Auto Finance
Glossary

Learn Everything You Need To Know In Automotive Financing Industry

While shopping around to buy a new car or even finance one, you as a buyer should know the terms used in the industry to save some bucks on your dreams. The term used for this is called car-speak – used by salesmen and dealers when they are selling you a car, even lenders when financing an auto loan. That’s why now it’s more important than ever that you should be aware of what they are speaking and, most importantly, how you respond.

Moreover, car-speak will help you gain an upper hand in the bargain or negotiation when lowering the prices and will also get you better deals off the road without being tricked by the dealers trying to bank your pockets.

A

ACV (Actual Cash Value): ACV is the evaluation of the damaged property, which equals replacement costs subtracted from the depreciation of the lost, damaged, or stolen property at the time of claim to cover the insurance.

Airbags: Airbags are cushions inflated with air that deploy as a safety measure when a collision happens to protect the vehicle occupant from heavy injuries.

Air conditioner: AC or air conditioners allow you to convert the air at any temperature to lower temperatures using a compressor. It works similarly to a cooler or an air conditioner at your home.

Air filter: Air filters help filter the incoming air from dust and impurities before being fed to the engine.

APR (Annual Percentage Rate): A loan’s APR determines how much it costs to loan money to purchase a car. It includes interest and fees, represented as a percentage.

Anti-lock brake system: ABS is an anti-skid mechanism useful when a driver needs to push a sudden brake on the car. It helps the car from locking up in an emergency by restoring traction to the tires.

Anti-theft device: There are several anti-theft devices for a car including an alarm, dash cam, immobilizers, wheel lock, kill switch, and even GPS. This is a precautionary measure to stop the car from being stolen.

Auto loan: An auto loan is also called a car loan where you can borrow any amount on the car of choice from the lenders in exchange for the car as collateral. You can choose the term, interest rates, and monthly installments you will be repaid to the lender for the car you purchased under the conditions stated by the lender.

Automatic gear: Automatic gear system uses hydraulic power to automatically change gears. It doesn’t need a traditional gearbox or driver’s input to transfer motion.

AWD or All-wheel drive: This is a device used to help improve the traction of the car, especially in rainy or snowy weather by simultaneously operating all four wheels to suit the terrain.

B

Balloon financing: A balloon payment is a lower monthly payment followed by a larger final payment at maturity. This method is usually preferred if you can pay a large sum at a given point in the future and are comfortable paying smaller amounts in the present.

Bankruptcy: Bankruptcy as we know is zero balance in your credit when you have an outstanding balance amount that you cannot repay. Filing bankruptcy means the discharge of debts encountered with serious legal proceedings and long-term impact on credit.

Base value: The base price or value of a car is the price of the vehicle without add-ons, taxes, and extra charges.

Brakes: A car’s base price or value There are four types of brake systems in a car. Disc, anti-lock, emergency, and drum brakes are all responsible for causing the vehicle to slow down and stop under different circumstances.

Bumper: Bumpers are car body parts designed to prevent or reduce the shock on the car after a collision depending on the size of the impact.

Buyout: Lease buyouts are when dealers allow buying your car before the lease contract ends.

Buyout amount: Buyout or payoff amount equals the residual value of the car stated in the contract, total remaining payments, fees, and taxes added.

C

Child safety lock: This safety lock mechanism can prevent the car from being opened from the inside, preventing exit until the owner opens the door from the car’s exterior handle.

Child seat anchor: LATCH (Lower anchors and tethers for children) or a child seat anchor is a built-in mechanism for securing a child on board without using seat belts.

CIBIL score: CIBIL score, also known as the credit score, gives a summary of your creditworthiness.

Collateral: Collateral is a security pledge that you make when applying for a loan. In the case of a car loan; your car itself is the collateral. This means, in any given circumstance; if you fail to repay the loan, the car can be seized and taken possession of by the lender, legally.

Convertible rooftop: This is an add-on feature on a few cars where the owner can drive the car with or without the roof.

Co-signer/Guarantor: This is a person (likely a family/friend/well-wisher) who will sign on a loan application jointly. He/she pledges to repay the loan in case you will fail to take responsibility in time.

Credit card: Credit cards are issued on a credit basis to borrow limited funds and repay in the future by the issued due date.

Credit insurance: It is a type of insurance to pay off one or more debts left unpaid by the financial shock in the events of death, unemployment, disability, or even loss of property. Simply put, it pays off the credit balance when a person dies, preventing a financial burden on loved ones.

Credit report: Credit reports are records of your credit statements made by the credit bureaus based on your previous activity and current status. This may include everything from your outstanding debts, bankruptcies, or even any negative track record.

Credit score: The credit score is determined by the repayment ability of the owner based on his credit history and the capability him repaying a loan or debt in time.

Credit unions: A credit union is similar to a traditional bank, but an NPO(nonprofit organization) exists to serve its members at lower interest rates from the funds they have saved within their group.

Creditworthiness: This is how your lender knows if you are worthy of a loan or new credit. It is based on your credit history, credit score, repayment capabilities, employment stability, and sometimes even your relationship with the lender.

D

Dealership: Dealerships deal with purchasing and selling vehicles from a particular company. It is an authorized sales agent for one car company.

Debt: Debts are the outstanding payments on the borrowed sum from another person or a party.

Debt-to-income ratio (DTI): DTI determines the borrower’s debt capacity for monthly repayments. It is the ratio of the monthly gross income divided by monthly debt payments to determine the money earned per month and the money going into clearing debts.

Deficiency balance: It is the outstanding amount to be paid to the creditor at the time when the vehicle is repossessed by the lender. The vehicle is thus sold at an auction to recoup the remaining principal balance that the borrower failed to repay.

Depreciation: Depreciation is the decrease in the value of the car from the time it is purchased to the present time. It is calculated over several other factors including age, resale value, mileage, and wear and tear of the car.

The depreciation rate is the percentage at which a vehicle depreciates yearly.

Direct financing: Direct financing is when you apply for a loan straight from the lender or a financial market without the help of dealers or third-party services.

Disc brake: Like any brake system in the car, a disc brake is a mechanism used for slowing and stopping a car upon the pressure applied on the pedal. They are used at higher speeds when an instant brake is needed.

Disposition fee: The amount is paid at the end of the lease to the dealer to cover the costs of preparing the vehicle for the next buyer.

DMV (Department of Motor Vehicles): DMV is a government agency operating on a state-level authority to manage vehicle registration and owner licensing services.

Down payment: It is the initial payment made at the time you purchase something in a percentage smaller than the total amount to be paid. It is also called a partial payment for something bought on credit.

Drum brake: Though drum brakes are not better at managing and dispersing heat compared to disc brakes, they are an inexpensive option when it comes to applying a normal brake. Especially useful as a parking brake.

E

Emergency brake: Also called parking brake or hand brake, is a brake system useful in stopping the vehicle IF the main brakes fail to function. 

Early termination

EMI (Equated Monthly Installments): EMI is the total loan payment divided into monthly fixed rates repaid on the due date every month over a specified tenure.

Emission score: Emission score equals the percentage of pollutants released by the vehicle into the atmosphere. An environment-friendly vehicle with a low emission score is useful in big tax-related savings.

Engine performance: It is the behavior and performance of the engine depending on the fuel emission, emissions, noise, and other mechanical attributes of the car.

EPA (Environmental Protection Agency): A federal agency responsible to reduce or prevent pollutants that harm the environment and human health.

EPA Testing: EPA testing measures the presence of pollutants or any toxic properties in the vehicle that can be of potential harm to the environment and mankind thus certifying the emission score on the vehicle.

Equity: Equity is the actual worth of the vehicle (resale value) minus the amount you owe on the auto loan. Positive equity is when the resale value of the vehicle exceeds the principal amount on the loan taken.

Extended warranty: It is a warranty contract extended over the initial manufacturer’s warranty on the vehicle at the time of purchasing a new car. Any repairs, defects, and even replacements are covered within the warranty over the mentioned span.

F

Fair Market Value (FMV): It is the price at which the vehicle is traded between two parties sharing common knowledge in the open market without being under pressure.

FICO (Fair Isaac Corporation): FICO is a corporation that issues credit scores for users based on their credit history.

Finance: It is the process of managing a large sum of money, such as raising funds for borrowing, lending, or investing to purchase any asset.

Fixed-rate finance: Fixed-rate finances offer interest rates that do not change with the market value. Even if there is an increase or decrease in the interest rates in the current market, the loan is set to remain the same throughout the loan tenure.

FOIR (Fixed Obligation to Income Ratio): FOIR allows you to consider your monthly income, requested loan amount, and current liabilities, to determine your repayment capacity and loan eligibility by financial institutions while lending loans.

Four-wheel drive (4WD): 4WD is a vehicle transition of sending power uniformly to all four wheels from the engine instead of the usual two to help steer with added traction, especially when off-road driving. 

Fuel capacity indicator: The fuel indicator shows the fuel quantity remaining in the vehicle. The red pointer indicates a need to fill fuel and the green; a filled tank.

Fuel injection: Fuel injection forces fuel into the internal combustion engine using an injector to maintain engine life and preserve the performance of a vehicle.

G

GAP insurance (Guaranteed Automobile Protection): It is a type of add-on coverage for automobile insurance to protect the owner from any loss if incurred.

Gearbox: The gearbox is used in vehicles with manual transmission. They are used to generate speed upon acceleration. The device however may have 5 to 6 shifting gears depending on the make and model of the car.

Global positioning system (GPS): GPS or navigation systems help navigate the user to the desired location using satellite services.

Grace period: It is a period of goodwill; a deadline sanctioned upon a borrower’s ability in failing to pay the fee on or before the monthly due date without being subjected to penalties.

H

Hands-free: Hands-free is a feature that can be used by the driver or the user without the need to physically touch the device to turn it on or off the mechanism. It can either be used as a voice-controlled feature or a motion sensor without distracting the vehicle occupants with manual work.

Hard Inquiry: Hard credit check or hard inquiry is the information retrieved by the lender or creditor upon applying for a loan or credit. This might take away 5 or more points on your credit score and thus be used carefully.

Hatchback: Hatchback is a type of car with a rear door feature that opens upward where luggage or extra goods can be stored.

Headlights: A vehicle’s headlights are used to provide light at night to travel in the dark and can be turned on and off depending on the time of the day.

Heater: While coolants help lower temperatures, heaters allow them to maintain a warm temperature in cooler weather. These are installed in cars as a part of an air conditioning system to help maintain a certain temperature in the cabin of the vehicle. And in a few cars, front passenger seats also have a built-in heating system to keep the passenger warm.

HP (Horse Power): It is the measurement equal to the power produced by the engine at which your engine can perform.

Hybrid engine: A car with more than one electric motor or propulsion system distributing distinctive powers is known as a hybrid car and it consists of a combination of an electric motor and a conventional engine (diesel or petrol).

Hypothecation: Hypothecation makes the lender a lienholder instead of the property holder. It pledges the vehicle as collateral instead of transferring the title to the lender.

I 

Ignition device: It is a device with an opening to fit the key and turn on the engine.

Incentive: An incentive is a special offer on the car designed to motivate the buyers in purchasing the car.

Indirect financing: Indirect financing deals with an intermediary who is partnered with the lenders and will take care of your financial needs via a third party.

Insurance: It is the protection provided by a company to retrieve money in case of any loss on the commodity or asset purchased.

Insurance premium: While the insurance covers any loss on the vehicle or any other asset obtained, a premium is what you pay monthly or annually to cover these losses in the future.

Installment: It is a total amount paid on a fixed basis equally distributed through an agreed period.

Interest rate: It is the percentage of the amount charged by the lender on top of the principal amount borrowed by the customer for any asset. Interest rates are variable and are affected by several factors varying from lender to lender.

Invoice: It is a time-stamped bill or a statement recording the prices of the goods and services provided and the costs incurred for each.

J

Jumpstart: If an engine fails to resume activity, jump start uses a connection (jumper cable) between the battery of another car engine and the car with a flat battery to resume activity.

Junkyard: A junkyard or a scrapyard is a place where your car is collected if you see it unfit to travel, at lower rates to be destroyed or recycled.

K

Keyless ignition system: Keyless ignition is a press button that does not require a key to start the engine.

Kickdown: Kickdown occurs when the driver pushes the acceleration to its full extent towards the floor. By doing so, the lower gear is activated. You can now use the vehicle at maximum acceleration used to overtake another vehicle.

Knockdown sensor: This sensor records the sensations happening during an engine block to sense any abnormality or damage and report back to protect engine control.

L

Lease: A lease is a contract or agreement signed by two parties. One renting an asset, another lending the asset. It grants the new owner temporary possession over the asset until the loan is repaid in full.

LED (Light Emitting Diode): LED is an electronic device emitting light with lower voltages varying depending on the color of the light.

Liability: It is an obligation or responsibility of an individual over possession of an article or asset (A person can be liable for anything he is appointed responsible for)

Lien holder: A lienholder is a lender, an individual, or a party that claims a hold on your property until the loan is repaid in full.

Limited Warranty: Limited warranty restricts or limits the warranty issued to only specific parts under certain conditions.

Loan: It is a sum borrowed by an individual from a person or a party promising to repay in the future with an interest rate.

Loan contract: It is an agreement document signed by the parties involved in the loan process to fulfill the requirements.

Loan maturity: It is the loan expiry date or due date at which the borrower is expected to pay the loan in full. Once fulfilled, the borrower is retired from the previous agreement and is known to have closed the loan successfully. 

Lock system: Unlike normal locks that are provided for each door, power door locks can lock or unlock all the doors simultaneously in the vehicle by pressing a single button located near the driver’s seat.

LPG (Liquified Petroleum Gas): LPG or autogas is the fuel required for the mobility of engines in certain cars.

LTV (Loan-to-Value Ratio): LTV is a lender’s measure to forecast the net profit amount by calculating the loan borrowed by their customer against the actual value of the asset purchased.

M

Maintenance: Maintenance in a car is the condition of the car or how well it is taken care of throughout the ownership of the car or usage of the vehicle.

Make and Model: Make is the brand of the car, and a model is a serial number or a name added to the series of cars. For example, Kia Seltos is a car where Kia is the make and Seltos is the model.

Manual gear: Manual gear cars have a gearbox where the driver should shift gears to generate speed upon acceleration.

Marketplace: It is an open place where the experts in the industry come together to sell their products or services.

MBA (Mandatory Binding Arbitration): It is a mutual agreement or contract between both parties, where the taxpayers and arbitrators agree to sort any disputes or legal disagreements out with each other instead of taking it to the court.

Mileage: It is the number of miles or distance traveled.

MSRP (Manufacturer’s Suggested Retail Price): MSRP is the retail price or the base value of the vehicle without any added charges, taxes, or features.

N

NBFCs: Non-banking Financial Companies or NBFCs are entities principally engaged in providing financial services without a government-acquired banking license. Bajaj Finance, Tata Capital, Aditya Birla, Mahindra & Mahindra, Muthoot finance, and HDB services, are some of the many examples of NBFCs.

Negative equity: It is a drop in the value of the car you own compared with the remaining balance on your loan you still have left to pay to the bank.

No credit check: No credit check policy is when the lender does not ask you for a credit score or is unaffected by a poor credit scorer. Usually, you can pledge the vehicle against the loan amount and get attractive deals and offers on your car with low-interest rates and zero down payments.

O

OEM (Original equipment manufacturer): OEM is a company that produces goods like parts or components of the vehicle that are marketed by another company in their end product.

Oil filter: It is the vehicle’s filter removing toxins or contaminants like unburned fuel or dirt from internal combustion engine oil as a cleansing process.

Ongoing fee: It is an extra monthly or annual fee charged by some lenders. It is also called a maintenance fee and varies from lender to lender depending on their policy.

Overdrive: It is the highest gear in the car used to lower the RPM rate during a high-speed drive. Overdrive improves fuel efficiency, and curbs noise, vibration, or wear and tear of the car.

Overhead camshaft: It is one of the vehicle’s mechanisms where the engine is responsible for improving the air-fuel flow.

P

Park assist: Using a guidance mechanism, park assist is a feature that allows the driver to park their car using a camera to display the movement on the special sensors located on the sides of the vehicle.

Payload: It is the load capacity of the vehicle within which it can safely operate without a burden on its mechanism. It is defined by the combined weight of the passengers in the cabin and the load in the trunk of the vehicle.

Pedal: The pedals are foot-operated mechanisms used to control the motion of the car by braking or accelerating depending on the requirement.

Penalty: Penalties are fines on the car in cases of overspeeding or driving without proper documents needed at the time of the driver being questioned for vehicle and individual proofs on the car. And the penalty on the loan is applied when the debts are not cleared in due time.

Power steering: Power steering reduces the effort put in by the driver to steer the wheel. It generates a movement with low pressure on the steering wheel.

Powertrain: Powertrain is the muscle of the vehicle holding together all the components of the vehicle that help convert the engine’s energy to motion.

Pre-approved loan: Pre-approved loans are typically loans sanctioned to a borrower even before he/she purchased the car upon the fulfillment of the eligibility criteria of the bank or the individual based on the buyer’s financial stability and credit report.

Prepayment penalty: It is a fee or fine charged by the lender to the borrower if he/she pays the loan amount well before the due date since the lender cannot anticipate if the customer has down paid or paid off with the variable interest rate that may go up or down at the time of the due date.

Principal amount: Principal amount is the original loan borrowed from the lender without interest rates, taxes, or extra charges.

Q

Quote: The car quote has the description and details on the car make, model, sticker price, offers, charges, add-ons, and the estimated total amount on the car for what the owner is paying and where the money is going.

R

Radio system: Stereo or radio is used as an audio entertainment feature that can be operated from one frequency to another frequency depending on the service area. It is also called the FM broadcasting system.

RC book: RC alias registration certificate is an official proof document showing registration proof of the vehicle with the government of India. It is mandatory and handy to keep a copy of the document in your car.

Rear brake system: These are also called drum brakes that are used to slow down or stop the vehicle with added stability. But front brakes or disc brakes play a larger role to manage the motion than a drum or rear brake system.

Rear Wheel Drive (RWD): When RWD has activated the power of the engine is pushed to the rear wheels of the car to push the vehicle forward in motion.

Rebate: Rebates or incentives are discounts made on the vehicle by the manufacturer to boost sales.

Residual value: It is the estimated value of the vehicle at the end of the lease

Retailer: Automobile retailers sell car parts or components to all parties alike. Consumers and private-party repair owners can buy these accessories at the store or online.

Retail Price: Retail Price or MSRP is the same. It is the sticker price on the vehicle recommended for selling the vehicle.

RTA agent: Registrar and transfer agents are mediators between investors and financiers who help both parties to manage, maintain, and transfer documents safely.

RTO: RTO or regional transport office is a government organization managing all transport-related activity in India. The RTO registration is however taken care of by the dealer or a third-party marketplace when you buy a car.

S

Seat belt: Seat belts are safety measures that the passenger or driver should wear and secure while traveling to avoid impacts in collisions.

Secure loan: Secure loan is a type of loan where the investor pledges the vehicle as collateral or security to the lender in return for the loan amount until paid in full.

Security deposit: If a car is rented, the security deposit is the amount paid by the customer as a deposit to the rental company. To cover any liability, unexpected charges, or damage caused by the render during the possession, the lender may use this sum.

Sedan: Sedans or saloons are traditional car models and 4-door passenger vehicles with a roof extending down the trunk of the car.

Shock absorber: Shock absorber is a mechanism used to reduce the impact on the car and control vehicle suspension when traveling on an uneven road.

Shock resistance: It is the level of strength or resilience of the vehicle upon increased acceleration at which the vehicle sustains without any kind of damage.

Simple interest: Simple interest loan is only based on the principal amount, unlike compound interest where interest on the principal is added to any other interest that has been aggregated over time.

Skidpad: It is a flat pavement or circular area that is designed to be made slippery where the drivers can practice controlling the vehicle’s movement and avoiding skids.

Smoked glass: Smoked glass is a type of screen or pigment used on window panes to reduce visibility into the vehicle’s interior. Smoked glasses or tinted windows were banned by the Indian government in 2012 to reduce any hidden criminal activity in the vehicles.

Speed limit: It is an indicator on the speedometer showing the speed at which the vehicle is being operated. The indicator may beep if the vehicle crosses the permissible limits of the car, for the driver to slow down if on public roads.

Sticker price: Sticker price/MSRP/Retail price is the manufacturer’s recommended price on the vehicle.

Steer wheel: A steering wheel or the steering wheel is used to adjust the direction of the wheels upon rotating the handle in the desired direction.

Subprime: Subprime auto loans are offered by lenders to investors with low credit scores and rough credit history; with interest rates higher than prime rates, depending on the agreement and relationship with the lender.

Sunroof: Sunroofs are open and close roof mechanisms where the driver can access sunlight and air if he chooses to uncover the window.

Supercharger: Superchargers or turbochargers are high-pressure devices that regulate air-increased pressures to the engine.

Suspension: Suspension provides friction between the road and tires by allowing the passengers to experience a smooth journey. It has a series of 4 coil springs, shock absorbers, tires, and linkages connecting the vehicle to its wheel system.

SUV: Sport utility vehicles or SUVs are less heavier and much more refined than trucks, designed to look like station wagons. They are highly capable of long journeys and more able in managing higher payloads on the vehicle.

T

Tenure: Tenure or term is the period in which the repayment of your loan should be cleared. It is usually 1 – 7 years for a new car and 1 – 5 for a pre-owned car. 

Third-party marketplace: Third-party marketplaces are mediators or intermediaries bringing together the vendors and service providers from a particular industry onto a single platform.

Traction control system: TCS or traction control system is used to detect a loss of traction among the wheels to help accelerate and counter any slippage while traveling on slippery roads.

Trade-in: Trade-in vehicles are the exchange vehicles that you bring to a dealer or an individual when purchasing a new car. You can get the new car at a decreased price in the exchange for the old one. This you can use to either fill down payments or reduce the total price of the vehicle.

Trade-in allowance: It is the amount reduced in the trade value of the new car in exchange for the old one.

Trail-braking: It is a brake technique used by drivers by simultaneously using brakes and steering while turning corners and manipulating the grip of the car to make a smooth turn.

U

Understeer: Understeer and oversteer are vehicle behaviors used when describing the sensitivity of the car while steering. Therefore understeer occurs when the driver steers less than the demanded amount when turning the car.

Unsecured finance: An unsecured loan needs no security asset in return for the loan amount. As a result, the lender may increase interest rates and steer his requirements depending on the mutual relationship of both parties concerned.

Upholstery: It is the entire interior of the vehicle, including seats, roof, fabric, springs, padding, etc,…

V

Variable loan: Variable loans or interest rates are the interest rates that are subject to change at any given time under market conditions.

Vehicle Identification Number (VIN): VIN is a unique code assigned to your vehicle to make its identification easier. It is like a fingerprint or a retina scan for the vehicle that makes it unique from other vehicles.

Vehicle registration: This is the ownership of the car registered in the presence of a government official. When the vehicle is purchased, the owner should change the title of the car to his/her name and include the financier if required to show proof of possession.

VSI Insurance: Vendor’s single interest or VSI insurance is a lender’s protection against the lender if it may be damaged or destroyed under any given circumstances before the loan is cleared.

W

Warranty: A warranty on a car will ensure that the company or dealers may service, repair, or replace without any added charges to the vehicle owner if the vehicle fails prematurely before the end of this warranty period. You can also extend your warranty period at the time of purchase.

Wheel lock system: It is an anti-theft feature to avoid the car from being stolen. It locks the steering wheel from being rotated. This can be unfrozen but will take some effort. Therefore it will take some time before the owner realizes that his/her car is being stolen.

Wholesale value: It is the price at which manufacturers sell their vehicles to dealers. This price will go up when the dealer sells the vehicle again to the customer to bank the profits.

Z

Zero Emission Vehicle (ZEV): ZEVs are environment-friendly and do not release any pollutants into the air.

Zero-offset steering: Zero-offset steering or zero scrub radius allows the car to steer smoothly without being impacted by bumps.