Some of the everyday terms used in the automotive world and, more specifically, when it concers financing for prime and subprime lending is not necessarily commonplace to the general public. When dealing with professionals in this industry, the words and terms used can sometimes sound like a foreign language or, at the very least, confusing and unclear as to their meaning. Below are some definitions and explanations of finance / automotive terms you may find useful when considering your financing options for a new or used vehicle.
APR is the annualized interest rate that a borrower pays on a loan, including all finance charges and fees. It is expressed as a percentage and represents the total cost of borrowing over a year. A lower APR indicates a better deal for the borrower.
CARFAX is a commercial service that provides vehicle history reports. These reports contain information about a vehicle's past ownership, accident history, mileage, title status, and other important details to help buyers make informed decisions when purchasing a used car.
OMVIC is the regulatory body responsible for regulating motor vehicle sales in Ontario, Canada. They enforce consumer protection laws, license dealerships, and ensure fair practices within the automotive industry.
UCDA is a not-for-profit association that represents Ontario's registered used car dealers. They promote ethical business practices and provide resources for consumers and dealerships alike.
The Canadian Black Book is a publication that provides vehicle valuation data for used cars in Canada. It offers industry-standard prices that dealers and consumers can use as a reference when buying or selling a used vehicle.
Wholesale refers to the price at which dealers purchase vehicles from other dealers or auctions. Retail, on the other hand, is the price at which dealers sell vehicles to consumers. Retail prices are higher to cover dealership costs and profit margins.
Trade-in allowance is the value a dealership offers a customer for their existing vehicle when they plan to purchase a new or used car from the dealership. The trade-in value is deducted from the purchase price of the new vehicle.
These are fees charged by the dealership to cover administrative costs related to processing paperwork, preparing contracts, and other administrative tasks involved in the sale of a vehicle.
The license fee is a charge levied by the dealership to cover the cost of registering the vehicle with the relevant government authorities and obtaining license plates.
The primary applicant is the main person applying for an auto loan. They are responsible for repaying the loan and are the primary owner of the vehicle.
A co-applicant, also known as a co-borrower, is a secondary individual who applies for an auto loan along with the primary applicant. Both parties share responsibility for repaying the loan and may be joint owners of the vehicle.
Proof of income is documentation provided by the applicant to demonstrate their ability to repay the auto loan. It typically includes pay stubs, bank statements, tax returns, or other forms of income verification.
Job tenure refers to the length of time an individual has been employed with their current employer. A stable job history can positively impact the loan approval process.
Booking value is the initial deposit made by a customer to reserve a vehicle before completing the purchase. It is also known as a vehicle deposit.
Term refers to the length of time the borrower has to repay the auto loan. It is usually measured in months (e.g., 36 months, 60 months).
Biweekly payments are made every two weeks, while monthly payments are made once a month. Biweekly payments result in 26 payments per year (equivalent to 13 monthly payments), which can help reduce the overall interest paid on the loan.
A sales representative, also known as a salesperson or sales associate, is an individual employed by the dealership to assist customers with vehicle purchases and answer questions about the vehicles and financing options.
The finance manager works at the dealership and is responsible for arranging financing options for customers, processing loan applications, and finalizing the paperwork associated with the sale of the vehicle.
A 3rd party warranty is an extended warranty or service contract purchased by the vehicle owner from a company other than the manufacturer. It provides additional coverage beyond the standard manufacturer's warranty.
GAP (Guaranteed Asset Protection) coverage is an optional insurance policy that covers the difference between the outstanding loan balance and the actual cash value of the vehicle in case of a total loss (due to theft or accident).
"As-Is" refers to the condition of a vehicle being sold without any warranty or guarantee from the seller. It means the buyer accepts the vehicle in its current state and is responsible for any future repairs or issues.
In the context of used cars, "safety" or "certified" means that the vehicle has undergone an inspection and meets certain safety standards set by the dealership or a regulatory body.
A lender refers to any financial institution or entity that provides financing, including banks, credit unions, or online lending platforms.
A prime loan is an auto loan offered to borrowers with excellent credit histories. Borrowers with prime credit scores are likely to qualify for more favorable interest rates and loan terms.
A sub-prime loan is an auto loan offered to borrowers with lower credit scores or less favorable credit histories. These loans often come with higher interest rates and may have stricter terms.
Equifax and TransUnion are two major credit bureaus that collect and maintain credit information on individuals. Lenders use this information to assess a borrower's creditworthiness when applying for an auto loan.
An open loan allows borrowers to make additional payments or pay off the loan before the end of the term without incurring penalties. A closed loan, on the other hand, typically has restrictions on prepayments.
A vehicle deposit, also known as a down payment or booking value, is an initial payment made by the buyer to secure the purchase of a vehicle.
The cooling-off period is a limited time frame during which a buyer can cancel a contract without incurring penalties or fees. There is no cooling off period in automotive sales & financing.
A Bill of Sale is a legal document that confirms the sale and transfer of ownership of a vehicle from the seller to the buyer.
References are individuals listed on an auto loan application who can provide additional information about the borrower's character and ability to repay the loan.
Finance refers to obtaining an auto loan to purchase a vehicle, while a lease involves renting a vehicle for a specified period, typically with the option to purchase at the end of the lease term.
KM Allowance, or kilometer allowance, is the maximum number of kilometers a lessee is allowed to drive per year without incurring additional fees or penalties.