Wondries Toyota

1543 W. Main Street
Alhambra, CA 91801
Phone: 626-289-8000
Fax: 626-414-2540

Auto Finance Dictionary

A majority of car shoppers choose to finance their vehicles rather than buying outright. That means it is especially important to know all the terms and jargon used in the industry. Below is a list of such terms, each of which will help you to better understand the industry. While buying a car can be a daunting task, here at Wondries Toyota, we’re dedicated to making the process as easy as possible for you.


Some of the most common terms to find include the following:


Amount Finance: How much, in dollars, that will be provided to you in credit

Amortization:  This is not as complex as it sounds. Amortization is the act of paying off a car loan with a fixed monthly payment over a specific period of time. A portion of your payment will go towards the principal amount (amount borrowed), while the other part will go towards interest


APR: Annual Percentage Rate, or the cost of credit as a percentage 

Base Rate: Also called the “sticker price” or “manufacturer’s suggested retail price” (MSRP), this is the standard price before equipment, additions, destination fees, and warranties.

Equity: The difference between the balance of your trade pay off and its actual value, which can be either positive or negative


Fixed Rate Financing: Financing in which the rate remains the same over the entire term of the contract


Direct Lending: A loan garnered directly from your bank, finance institution, or credit union


Dealer Financing: Financing done through the dealership where you have purchased your vehicle


Finance Charge: The dollar amount you pay in order to use credit


Lien/Lienholder: A lien occurs when you borrow from a financial institute who, subsequently, owns your car until it is paid in full. The lienholder is the actual institute, while a lien is the right (of the bank) to own your car while you’re in debt.


Simple Interest: A calculation of the finance charge determined by your unpaid principal balance, your APR, and the amount of time between payments


Term: The number of monthly payments expected over the course of your contract


Trade In: A vehicle that you exchange while buying a new car. Generally, dealerships put the money of your trade in towards a new vehicle. This is a great way to get a deal selling your old car.


Usury Laws: Again, you’ll see this phrase a lot. Simply put, these are a set of regulations that govern how much a bank can charge in interest. “Usury” is the act of lending money with interest.


Variable Rate Financing: Financing in which the rate fluctuates throughout term (NOTE: this is not a common form of financing)

These are just some of the basic terms you might encounter when borrowing from a financial institute like a bank, credit union, or other organization. For more information, ask our friendly staff in the Finance Department any questions you might have. AdChoices
Powered By NLM