Terms and Definitions
- AMOUNT FINANCED
- The amount to be financed includes principal, taxes, tags licenses, and any cancelable insurance.
- APPROVAL
- Lender's okay of a credit application and willingness to extend credit to a customer for a vehicle purchase.
- APPROVAL RATIO
- Ratio of the number of finance deals called-in to the number approved by the Lenders.
- BALLOON PAYMENT
- An equal monthly payment contract of two or more installments with the final payment usually substantially greater than the proceeding installments.
- BINDER
- Temporary insurance coverage provided to a customer on a new vehicle pending issuance of a policy of insurance.
- BUSINESS MANAGER
- Individual who manages the Finance and insurance office, and handles all financial and insurance matters for the dealership
- BUY DOWN
- Process where the dealer will "buy-down an interest rate" in order to advertise a super low interest rate on certain vehicles. For example, if the normal bank rate is 11% APR and the dealer offers a 4% rate to the customer, the dealer must pay the difference (7%) between the two rates to the bank, but gets to move a vehicle off his/her lot.
- BUY HERE PAY HERE (BHPH)
- Also referred to as in-house financing or dealership financing. The car dealer acts as the lender and payments are made to the dealership, usually on a weekly or bi-weekly basis.
- BUY RATE
- Rate charged by the lender to the dealer for money that will be loaned to customers. Also know as DISCOUNT RATE.
- CALLED-IN
- When your application for credit is faxed or telephoned to the lender for review of your credit history.
- CAPTIVE BUYER
- Name given to a prospective borrower who has to depend on dealer source financing in order to purchase a vehicle.
- CAR INSURANGE COVERAGE
- There are six forms of coverage:
- Collision Coverage. The coverage that pays only for repairing a vehicle damaged in an accident. Collision insurance costs are based on the value of the vehicle, location where driven, and the type of deductible selected.
- Comprehensive (Physical Damage) Coverage. Includes fir, theft, damage from windstorm and other natural occurrences, vandalism, even road service and hail. Its cost varies according to where the vehicle is domiciled.
- Bodily Injury Liability. Pays injury/death claims against the insured, and legal costs if the insured's vehicle injures or kills someone.
- Property Damage Liability. Pays claims for property that the insured's vehicle damages in an accident.
- Medical Payments. Covers injuries to the insured and occupants of the insured's vehicle.
- Uninsured Motorist Protection. Covers injuries caused to the insured or occupants of the insured's vehicle by an uninsured or hit-and-run driver.
- CASH ADVANCE
- Amount of money a lender will advance to finance a customer's vehicle purchase (excluding finance and insurance charges).
- CANCELLATION
- The termination of an insurance policy before its expiration because of an early payoff by the customer.
- CHARGEBACK.
- That portion of the dealer's finance and/or insurance income that has not yet been earned due to prepayment or cancellation, and is "charged back" to the dealer's account by the lender holding the installment sales contract.
- CREDIT ACCIDENT AND HEALTH INSURANCE (A&H)
- Insurance coverage that pays for a disability resulting from an accident, illness or sickness that prevents the insured from engaging in his/her normal job duties. Benefits are payable once the insured from engaging in his/her normal job duties. Benefits are payable once the number of days specified in the waiting or elimination period have past, then 1/30th of the monthly payment will be paid for each day the insurer is unable to work. There are basically two types of policies:
- Elimination - where benefits are payable from the end of the waiting period going forward. The waiting period generally ranges from 14 days to 30 days; i.e., there are no benefits paid for the first 14 or 30 days.
- Retroactive - where benefits are payable from the first day of the disability, if the insured is disabled for more than the stated waiting period - 7 days, 14 days or 30 days.
- CREDIT DISABILITY INSURANCE
- A health insurance policy which makes payments to the lender if you become sick or disabled and are unable to work. There may be a limit on the number of payments or the total dollar amount the policy will pay. This form of insurance is normally more expensive than CREDIT LIFE INSURANCE.
- CREDIT LIFE INSURANCE
- A very specific decreasing term insurance that covers the life of the insured for the amount of the outstanding balance for a given period of time. Credit life coverages are available as follows:
- Single Decreasing is decreasing term life insurance on the primary debtor that pays off the gross contract amount, including the remaining interest.
- Joint Decreasing is decreasing term life insurance on the lives of two joint and individually liable debtors. Benefits are paid on the death of the first of the joint debtor and insurance on the surviving debtor terminates automatically. In the event of simultaneous death, only one death claim is paid.
- Net Pay is a form of decreasing term life insurance that, in the event of death, covers only the net principal balance of a loan. The amount of insurance reduces each month by the amount that the payment by the debtor reduces the principal. Both single and joint coverage can be written.
- Level Term is credit insurance where the amount of insurance remains constant over the term of the coverage.
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