Debt Ratio
How much you earn compared with how much you owe. The lower your debt ratio, the more disposable income you have.
              h You calculate it like this: Take the amount needed to repay debts each month, including rent or mortgage, and divide this by your gross pay (your pay before deduction of tax).
Delinquency
Failure to make one or more installment payments by the due date(s).

Disclosure Statement
A statement of the total amount and cost of a loan, including the principal loan amount, interest rate and any additional finance charges or loan fees. The disclosure statement is contained within a bold box on the retail installment (finance) contract.

Finance Charges
A set percentage charged to the borrower by a lender. To calculate this subtract the total of payments from the amount borrowed.

Fixed Interest Rate
A fee charged for the use of borrowed money, based upon a set percentage rate.

Insurance Products
When you're borrowing money to buy a car it's likely that you'll be offered insurance products.
                  1) GAP Insurance - If your vehicle is totaled for any reason the amount your insurance company pays may be a whole lot less than the actual amount you still owe on your loan. GAP Insurance pays the difference. This product is highly recommended if you are adding negative equity to your new loan.
                   2) Credit Life - Credit life insurance pays off the balance of your loan upon your death.
                  3) Disability - This insurance pays your monthly payment if you are unable to work due to illness or injury. There is normally a waiting period:
                               h 14 Day Retro -If you are disabled for 14 days before a claim is made. With a doctor’s certificate the first payment is retroactive to the day the disability took place. Payments cease when you return to work.
                               h 30 Day Retro - If you are disabled for 30 days before a claim is made. With a doctor’s certificate the first payment is retroactive to the day the disability took place. Payments cease when you return to work.
                              h 30 Day Elimination - If you are disabled for 30 days before a claim is made. With a doctor’s certificate the payments begin after the waiting period. Payments cease when you return to work
                   4) Employment Insurance - Not available in every state. This insurance pays your monthly car loan payment if you involuntarily loose you job.
                   5) Extended Service Contract - Covers the cost of unexpected auto repairs. Service contracts normally have a per visit deductible and most do not cover normal wear items such as break pads.

Loan to Value (LTV)
The amount financed relative to the published book value of the vehicle. Lower LTV's have a better chance of approval. Lenders usually use Trade of Wholesale Value Book Value when calculating LTV.
                    1) Book Value - The published valuation of a vehicle. There are three nationally recognized vehicle valuation services.
                              h NADA®
                              h Kelly Blue Book®.
                              h Black Book.

Minimum Down Payment
Few lenders will approve an auto loan for people with bad credit without a down payment. Lenders vary on acceptable forms of down payment; a summary follows:
                       1) Cash - Cash is always acceptable.
                      2) Trade Equity - The difference between the value of your trade and the lien payoff. Trade equity is always acceptable as a down payment.
                      3) Negative Trade Equity (Upside-Down) - The difference between the lien payoff and the value of your trade. Since this is a Negative Number it cannot be used as a down payment.
                      4) Manufacture's Rebate - Some lenders do not allow rebates to meet their minimum required down payment. The rebate, however, is still used to reduce the finance amount.
                      5) Dealer Rebate - Lenders do not allow dealer rebates to meet their minimum required down payment. The rebate, however, is still used to reduce the finance amount.

Payment
Payments received are first applied to (collection) fees, then to accrued interest, and finally to the outstanding principal balance. To calculate a payment use our auto loan calculator.

Principal
The amount borrowed, or the amount on which you pay interest and must pay back, which may increase as a result of capitalization of interest.

Principal Balance
The portion of the original loan, plus capitalized interest, which the borrower has not yet satisfied through payment or cancellation.

Payment to Income Ratio
Your monthly car payment compared to your gross monthly income. Most lenders prefer this ratio to be less than 15%.

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