Amortize, or amortization, generally means to pay for something in installments over a period of time. This usually includes an interest charge.
Amount Financed
In a loan or other credit transaction, the “amount financed” disclosed on the financing contract is the amount of credit provided to the borrower or on his/her behalf. For a car loan, it normally includes the vehicle’s cash price, less any down payment, plus any additional products or services purchased, and any applicable taxes, title, registration or other charges that are being financed.
Amount Owed on Trade In
The amount required to settle the finance agreement with your current lender on your trade in (if applicable).
Annual Percentage Rate (APR)
The annual rate that you pay for borrowing money expressed as a percentage, based on the actual yearly cost of funds over the term of your loan.
The bank, finance company, credit union or other financing source that purchases the installment sales contract (or lease) from the original creditor (or lessor) named on the contract. The retailer from whom you purchased the car will be the original creditor (or lessor).


Base Monthly Payment (Lease)
On a lease, the base monthly payment covers depreciation, any other amortized amounts and rent charges. It is calculated by adding the total depreciation and any other amortized amounts to the total rent charge, and then dividing the total by the number of months in the lease (the lease term). Monthly sales/use taxes are added to this base monthly payment to determine the “total” monthly payment.


Capitalized Cost (Lease)

On a lease, the “gross capitalized cost” is the amount agreed upon by the lessor (retailer) and the lessee as the value of the vehicle and any items that are capitalized or amortized during the lease term, such as taxes, insurance, service agreements, and any outstanding prior credit or lease balance.

The “capitalized cost reduction” is the total amount of any rebates, cash payment, net trade-in allowance, and noncash credit that reduces the gross capitalized cost.

The “adjusted capitalized cost” is the gross capitalized cost less the capitalized cost reduction, and is the amount used by the lessor in calculating the base periodic payment.

Cash Price
On a vehicle purchase, the cash price is generally the dollar amount the buyer agrees to pay the retailer for the car. In some states, it includes the sales tax. Definitions vary from state to state.
Credit Application
A request for credit (or a lease) submitted to a creditor, which includes information requested by the creditor according to the creditor's procedures, as well as various legally required disclosures. A creditor typically requires the applicant's name, other identifying information (such as date of birth and Social Security number), income, debts and other creditworthiness, and financial information. A credit application may be submitted in writing, verbally (for example, over the phone) or via the internet, depending on the creditor.
Credit Score
A numerical score assigned to a consumer by each of the credit reporting agencies that reflects the consumer's estimated credit risk based on information contained in his or her credit report. The better the credit history, the higher the score.
A creditor's assessment of the likelihood that a person will satisfy, or fulfill, his/her credit obligations.


Depreciation is the estimated decrease in a car's value over time. Projected, or expected, depreciation is used when calculating lease terms.
Disposition Fee (Lease)
On a lease, a disposition or "turn in" fee is often charged at lease termination if the car is not purchased and, instead, is returned to the lessor or assignee.
Down Payment
The total amount of money you pay up front to reduce the amount financed or the capitalized cost of the lease.


Early Termination (Lease)
A lease that ends 31 days or more before the original scheduled maturity date, regardless of reason.
Early Termination Liability (Lease)
The amount owed if a lease ends before its scheduled maturity date. The lease agreement describes how the charge is calculated.
Equity (Purchase)
A car's market value above any amount owed. For example, a vehicle worth $30,000 with $20,000 still owed has $10,000 of equity.
Excess Mileage Charge (Lease)
A per-mile charge for miles driven in excess of the maximum specified in the lease agreement. For example, if a 3-year/36-month lease allows 12,000 per year, or 36,000 total miles over the lease term (3 x 12,000 miles = 36,000), and has a charge of $0.30 per mile over the allowance, then a person who returns the vehicle at the end of the term with an odometer reading of 37,000 miles will be charged $300 for excess mileage ($0.30 x 1,000).
Excess Wear and Use Charge (Lease)
A charge to cover the estimated or actual cost to repair or replace wear and use on a leased car that is beyond what is considered normal. The charge may cover both interior and exterior damage, such as upholstery stains, body dents and scrapes, and tire wear beyond the limits stated in the lease agreement.


Finance Charge
As disclosed on the financing contract, the finance charge is the total cost of the credit expressed as a dollar amount.
Financing Contract
The financing contract is the retail installment sales contract (in the case of Retailer Financing) or the promissory note (in the case of Direct Loan Financing).


Lease Term
The period of time, in months, from the beginning of the financing contract or lease to the scheduled maturity date, as disclosed in the financing contract or lease.
The person who leases the car from a car retailer (lessor). The lessee’s obligations are specified in the lease agreement. The lessee generally has the right to use and possession of the vehicle, but has no ownership rights in the vehicle.
The car retailer who owns the car and leases it to the lessee. In some cases, the term is also used to refer to any assignee of the lease.


Manufacturer's Suggested Retail Price (MSRP)
The base price of a car, including all factory-installed options. The MSRP is shown on the car's window sticker when the car arrives from the factory. Also known as the sticker price. It may include destination/handling charge. Excludes tax, title, license, and retailer fees.
The maximum number of miles allocated each year to stay within the maximum mileage allowed during the lease term.
Monthly Payment (Lease)

The “base monthly payment” covers depreciation, any other amortized amounts and rent charges. It is calculated by adding the total depreciation and any other amortized amounts to the total rent charge, and then dividing the total by the number of months in the lease (the lease term).

Monthly sales/use taxes are added to this base monthly payment to determine the total monthly payment.

Monthly Payment (Purchase)
The dollar amount due each month under the financing contract to repay the amount financed and accrued finance charges.


Negative Equity (Purchase)
The amount owed on the vehicle in excess of the vehicle's current market value or agreed-upon trade-in value. For example, a vehicle worth $6,000 with $8,000 still owed has $2,000 of negative equity.


Purchase Option
The option to purchase your leased vehicle at the end of the lease term for an amount, and a fee, if applicable, each as disclosed in your lease agreement. The purchase option fee does not include fees for tags, taxes or registration.


Residual Value (Lease)
The estimated value of a leased car at lease end, which is projected at the beginning of the lease. Residual value is used to calculate the base monthly (lease) payment. Since it is only an estimate, it may be higher or lower than the vehicle's actual market value at the scheduled lease-end. If the customer purchases the vehicle at lease-end, the purchase price will include the residual value and any other outstanding charges on the account.
Retailer Financing
New or used car financing from a retailer. In most states, the buyer enters into a retail sales contract with the retailer—agreeing to pay for the vehicle’s cash price (less any down payment, rebates or other incentives) and other charges (the amount financed) at an agreed-upon APR, over the Contract Term. Then, that contract usually is sold by the retailer to an assignee.


Scam: Sign and Release
Sign and Release is a growing type of scam in the automotive industry, where a deceptive person recruits an unsuspecting consumer to enter into a vehicle purchase or lease. After the paperwork is complete, the consumer turns the vehicle over to the scammer, who promises to make the payments and/or payoff the account within a few months.

The deceptive person uses convincing stories to explain why they can’t execute the transaction themselves and, typically offers the unsuspecting consumer compensation for their time and effort. Unfortunately, these individuals don’t make the payments, the vehicles go missing and the consumer remains responsible for the payments. Any payments not made will negatively impact the consumer's credit.


The length of your loan or lease expressed in months.
Trade-In Allowance
The amount the retailer agrees to pay to purchase a trade-in car. If there is equity in the trade-in vehicle, the equity is applied toward the price of the car being purchased or leased. If there is negative equity, it may be added to the amount financed (purchase) or capitalized cost (lease), increasing the total amount paid.