Auto financing glossary

• 722 Redemption Loan — Under 11 U.S.C. §722, a Chapter 7 debtor can redeem a car for its current value in one payment — a different 'redemption' than getting a repo back.
• 910-Day Rule — The 910-day rule blocks a Chapter 13 cramdown on a personal-use car loan taken out within about 910 days (2.5 years) of filing.
• Acquisition Fee — An acquisition fee is what a subprime lender charges the dealer to buy your contract. Every $1,000 it adds at 18.86% over 72 months costs $23 a month.
• Adverse Action Notice — An adverse action notice states the specific reason a lender denied you credit or offered worse terms — a right that comes from 2 federal laws together.
• Alternative Credit Data — Alternative credit data — rent, utility, and phone payments — can support a thin or missing file at the 3 major bureaus, but it's not a guarantee of approval.
• Amortization vs. Simple Interest — Amortization is a loan's payment structure. Simple interest is how it accrues daily. On $18,000 at 21.6% over 60 months, extra principal cuts cost fast.
• Authorized User — An authorized user gains someone else's tradeline without owing the debt — 1 credit-building tactic that only helps if the account is managed well.
• Automatic Stay — The automatic stay is a federal injunction halting most collection, including repossession, the moment bankruptcy is filed — 1.73M cars repossessed in 2024.
• Balloon Payment — A balloon payment is 1 large lump sum due at the end of a loan, after smaller regular payments — rare in mainstream subprime (300-600 score) lending.
• Book Value — Book value is what a lender's guide says a car is worth — a $15,000 asking price can book closer to $12,000, capping the loan a lender will approve.
• Breach of the Peace — Breach of the peace limits how a car can be repossessed — no force, threats, or break-ins. Roughly 1.73 million vehicles were repossessed in 2024.
• Buy Rate — The buy rate is the rate the lender approves before dealer markup. Two points on top of an 18.86% buy rate costs $17 a month and $1,000 over 60 months.
• Captive Finance Company — A captive finance company only finances 1 manufacturer's vehicles and sometimes runs flexible first-time-buyer programs to move that brand's inventory.
• Chapter 7 vs. Chapter 13 — Chapter 7 discharges most debt in months by liquidating non-exempt assets; Chapter 13 keeps more property through a 3-to-5-year repayment plan.
• Charge-Off vs. Collection Account — A charge-off is the original creditor writing off a debt; a collection is a third-party collector reporting it separately. Both can last about 7 years.
• Co-Borrower — A co-borrower shares ownership and full liability; a cosigner takes liability without ownership. Pricing $16,000 at 9.06% versus 18.86% is $81 a month.
• Commercially Reasonable Sale — A commercially reasonable sale means a repossessed car must be sold fairly, not dumped cheap to inflate what's owed — it shapes 1.73M 2024 deficiencies.
• Conditioned Approval — A conditioned approval is step 1 of 2: the lender approved your credit, but funding still depends on stips clearing before the deal is final.
• Contract in Transit — A contract in transit is a signed deal on its way to the lender for final review — it can still be declined or sent back for stips, even after 1 signature.
• Cooling-Off Myth — There is no federal 3-day right to cancel a car purchase at a dealership — that rule covers sales like door-to-door, not dealer showrooms.
• Cramdown — A cramdown reduces secured debt to collateral value in Chapter 13, but the 910-day rule blocks it for most car loans from the last 2.5 years.
• Credit Invisible — Credit invisible means no file exists at any bureau — different from a thin file, which has some history. Both often need $1,000 to $2,500 down.
• Credit Life and Disability Insurance — Credit life insurance pays off a car loan if you die; credit disability covers payments if you can't work. Both are dealer add-ons, often financed at 21.6%.
• Credit Union Indirect Programs — A credit union indirect program lets a dealer submit your application under credit union rates and guidelines — 1 of 2 ways a credit union loan starts.
• Curbstoning — Curbstoning is an unlicensed dealer posing as a private seller, illegal in most of the 50 states. Red flags: multiple cars 'for a friend,' bad title.
• Deal Jacket and Funding Delay — A deal jacket holds the paperwork for 1 car sale, sent to the lender to fund it. A funding delay hits when something in it is missing, even after delivery.
• Dealer Participation (Rate Markup) — Dealer participation is the spread between the lender's buy rate and your contract rate. Two points on $20,000 over 72 months costs $23 a month.
• Deep Subprime — Deep subprime is Experian's roughly 300-500 credit score band, where used-car APR averaged 21.6% in Q1 2026 — the tier below regular subprime (501-600).
• Default (Auto Loan) — Default is the contract event letting a lender accelerate a loan and repossess the car — often triggered by missing just 1 payment.
• Deficiency Balance — The deficiency balance is what you still owe after a repossessed car is sold — payoff plus costs, minus auction price. 2024 saw 1.73 million repossessions.
• Deficiency Notice Requirements — Many states require lenders to send 1 or more notices before or after selling a repossessed car, disclosing the sale details — timing varies.
• Discharge vs. Dismissal (Bankruptcy) — A discharge legally wipes out qualifying debt; a dismissal ends the case without erasing anything — only 1 of the 2 outcomes changes what you owe.
• Doc Fee — A doc fee covers a dealer's paperwork costs, separate from price, tax, title, and registration — 4 distinct line items. State caps vary widely.
• Electronic Lien and Title (ELT) — Electronic lien and title (ELT) records a lender's lien electronically instead of a paper title — release often ties to a 10-day payoff window.
• Equal Credit Opportunity Act (ECOA) — ECOA is the federal law barring creditors from weighing 8 protected traits in a credit decision, including approval, denial, and pricing terms.
• Extended Warranty (Vehicle Service Contract) — An 'extended warranty' is almost always a vehicle service contract, not a manufacturer product — financed in at 21.6% APR, a $2,500 VSC adds $1,609 interest.
• Fair Credit Reporting Act (FCRA) — The FCRA is the federal law governing credit report accuracy, giving you the right to dispute errors and a free report after 1 denial.
• FICO Auto Score — FICO Auto Score is the industry-specific score auto lenders use. It runs 250 to 900 instead of 300 to 850 and weighs past auto history more heavily.
• First-Payment Default (FPD) — First-payment default means missing payment 1 on a new car loan. Lenders treat it as a much bigger red flag than a later missed payment.
• Franchise vs. Independent Dealer — A franchise dealer sells 1 manufacturer's brand and often has captive-lender programs; an independent sells used vehicles across makes, down to BHPH lots.
• Front-End vs. Back-End (Dealership Profit) — Front-end profit is the markup on a car's price; back-end is financing and add-ons — 2 separate profit centers in the same sale, both worth negotiating.
• FTC Holder Rule — The FTC Holder Rule preserves your right to raise seller claims against whoever holds your loan. Recovery is capped at what you've paid, sometimes near $0.
• FTC Used Car Rule (Buyers Guide) — The FTC Used Car Rule requires a Buyers Guide sticker on used cars in all 50 states, disclosing as-is or warranty status before you negotiate.
• GAP Insurance — GAP insurance pays the gap between a total-loss payout and your loan — $6,000 if you owe $22,000 on a $16,000 car. Most exclude rolled-in negative equity.
• GPS Disclosure — Some states require lenders to disclose in writing that a financed car has a GPS tracker or kill switch, on loans that can run about 25.4% APR.
• Hard Inquiry vs. Soft Inquiry — A hard inquiry can cause a small, temporary score dip; a soft inquiry never affects your score. Multiple hard pulls within 14 days usually count as one.
• Indirect vs. Direct Lending — Indirect lending routes your application through a dealer, who may mark up the rate. Direct lending means arranging financing with 1 lender first.
• Lease Here Pay Here — Lease-here-pay-here structures a BHPH deal as a lease, not a loan — unlike BHPH's 25.4% APR, you build no equity and don't own the car without a buyout.
• Loan-to-Value (LTV) — LTV is the amount financed divided by book value — $18,000 on a $15,000 car is 120%. Subprime lenders cap it per program; a down payment moves it fastest.
• Means Test (Bankruptcy) — The means test compares 6 months of income to your state's median to decide Chapter 7 eligibility — income above it triggers a second calculation.
• Menu Selling — Menu selling presents F&I add-ons as a package, often with a default pre-selected. Ask what the payment does if each of the 4 to 6 lines is removed.
• Military Lending Act (MLA) — The MLA generally exempts a standard purchase-money auto loan, but whether add-ons like GAP financed at 21.6% into it are covered is a real, unsettled question.
• Negative Equity — Negative equity means owing more than the car is worth. About 30% of trade-ins carry it, averaging $7,100 — rolling it forward is how borrowers get stuck.
• Open Auto Stip — An open auto stip is 1 unresolved condition on a car loan approval, often an unpaid trade-in payoff. It's unrelated to auto insurance policies.
• Origination Fee — An origination fee covers a lender's cost of processing a new loan, paid upfront or rolled into the loan — 1 of 2 fee types easily confused with a doc fee.
• Packed Payment — A packed payment bundles add-on products into the monthly payment so their cost is hidden. An illustrative $2,500 packed in at 21.6% APR adds $69 a month.
• Payment-to-Income Ratio (PTI) — PTI is the share of gross income going to the car payment. Subprime lenders cap it near 15% to 20% — $3,000 a month means a payment near $450 to $600.
• Payoff Amount and 10-Day Payoff — A payoff amount is what you owe today to close a loan, not the balance on your statement. A 10-day payoff quote holds that figure for a set window.
• Per Diem Interest on a Car Loan — Per diem interest accrues daily on a car loan's balance — around $9.47 a day on $16,000 at 21.6% APR — which is why a payoff quote is only good for 10 days.
• Power Booking — Power booking inflates a car's condition or mileage so it appraises higher — a loan bigger than the car is worth, deeper than the 30% average underwater trade.
• Precomputed Interest — Precomputed interest fixes a loan's full finance charge at signing, common on subprime (300-600 score) contracts, so early payoff saves less than expected.
• Prepayment Penalty — A prepayment penalty is a fee for paying off a loan early. Less common today, but a subprime (300-600 score) borrower should confirm one doesn't exist.
• Proof of Income (POI) — Proof of income (POI) is the stip proving your pay is real and steady — usually consecutive pay stubs, checked against a $1,500 income floor.
• Proof of Residence (POR) — Proof of residence (POR) confirms your address is real, usually with a utility bill or lease — one of 6 common stips on a subprime approval.
• Re-Aging (Credit Reporting) — Re-aging is illegally resetting a debt's date of first delinquency so it looks newer than it is — the date that controls the 7-year reporting clock.
• Redemption After a Repossession — Redeeming a repossessed car means paying the full amount owed plus costs to get the same car back before auction — 1.73 million cars were repossessed in 2024.
• Reinstatement After a Repossession — Reinstatement means paying only the missed payments and fees to bring your original car loan current — a cheaper path than redemption. 1.73M repos in 2024.
• Related Finance Company (RFC) — A related finance company is a separate finance arm under the same ownership as a BHPH dealer. It's why BHPH lots can finance in-house at a ~25.4% average.
• Replevin — Replevin is a lawsuit a lender files to recover a car it couldn't repossess without breaching the peace. About 1.73 million cars were repossessed in 2024.
• Repossession — A repossession is the lender taking back a financed vehicle after default, usually with no court order. Some 1.73 million vehicles were repossessed in 2024.
• Right to Cure — A right to cure lets you bring a defaulted car loan current by paying only what is past due. Not every state has one — 2024 saw 1.73 million repossessions.
• Risk-Based Pricing — Risk-based pricing sets a loan's rate by the lender's assessed risk of you specifically — why deep subprime averaged 21.6% APR against 6.3% super-prime.
• Rule of 78s — Rule of 78s front-loads interest on a precomputed loan. Federal law bans it only on consumer loans over 61 months — not banned everywhere, despite the myth.
• Salvage Title vs. Branded Title — A salvage title means a total-loss ruling; a branded title is the broader category across the 50 states, including rebuilt and flood. Financing gets harder.
• SCRA Repossession Protections — SCRA can require a court order before repossessing certain pre-service vehicle loans, and it separately lets you request a 6% interest cap in writing.
• Skip Tracing — Skip tracing is how a lender locates a borrower who's gone unreachable — the reason applications commonly ask for 5 or more references upfront.
• Special Finance Department — A special finance department handles subprime credit files, working a wider lender panel than standard F&I — often reaching the 300-500 deep-subprime tier.
• Spot Delivery — Spot delivery is taking the car the same day, before the loan is funded — with stips pending 3 to 14 days, it is what makes a yo-yo sale possible.
• Statute of Limitations on Repossession Debt — The SOL is how long a creditor can sue over a repo deficiency. It varies by state — commonly 2 to 6+ years — and the debt doesn't just vanish when it expires.
• Stips (Stipulations) — Stips are the documents a lender requires before funding an approved car loan: proof of income, residence, insurance, and 5 to 8 references.
• Subprime Finance Company — A subprime finance company specializes in credit-challenged auto paper — usually the lender behind deep-subprime rates near 21.6% used, 15.85% new.
• Surplus (Repossession) — A surplus is money owed back to you when a repossessed car sells for more than what you owed — rare among the 1.73M 2024 repossessions.
• Thin File — A thin file means too little credit history to score reliably — a different problem than bad credit. Even 1 or 2 accounts can leave a file unscoreable.
• Tier Bump — A tier bump moves you from one credit tier to the next, like 500 to 501 — often worth more in rate than 20 points within a tier.
• Title and Lienholder — You own a financed car; the lender holds a lien on the title. A late lien release blocks refinancing $15,000 from 21.58% to 14.11% — worth $58 a month.
• Title Washing — Title washing illegally re-registers a salvage or flood car in a weaker-disclosure state to erase its history — fraud in all 50 states, no exceptions.
• Tote the Note — Tote the note is old slang for buy-here-pay-here financing, where the dealer carries the loan itself — the same concept behind BHPH's ~25.4% average APR.
• Tradeline — A tradeline is one account entry on a credit report, with its own balance and payment history. A file with only 1 or 2 tradelines often can't score.
• Trustee Approval to Incur Debt — In active Chapter 13 cases, debtors generally need trustee or court approval, often via a motion, before financing a car — 3 to 5 years of plan is at stake.
• Truth in Lending Act (Regulation Z) — TILA and Regulation Z require lenders to disclose 4 key figures before you sign, and stating 1 of 4 'trigger terms' in an ad requires disclosing full terms.
• UDAAP — UDAAP is the federal standard for Unfair, Deceptive, or Abusive Acts or Practices — 3 prongs the CFPB applies across consumer lending, including auto loans.
• Unwound Deal: Unwinding a Car Sale — Unwinding a car sale reverses it fully — the vehicle, trade-in, and a $1,000 to $2,500 down payment all come back — usually before financing funds.
• Usury Cap and RISA (Retail Installment Sales Act) — There's no single federal usury cap on car loans. Most of the 50 states carve autos out of it and set rates through a separate RISA instead.
• VantageScore — VantageScore is the credit model most free apps show, built on a 300 to 850 scale — different from the 250 to 900 FICO Auto Score a dealer pulls.
• Vehicle Protection Add-Ons — Window etch, tire and wheel protection, and appearance protection are 3 common add-ons — financed at loan APR, a $900 bundle adds about $25 a month.
• Voluntary Surrender — A voluntary surrender is returning the car yourself. It still reports as a repossession — 1.73 million in 2024 — and you still owe the deficiency.
• Welcome Call (Verification Call) — The welcome call is the lender's pre-funding call confirming the deal, your job, and income — often a $1,500 to $2,000 floor. Wrong answers can stop funding.
• Yo-Yo Financing — Yo-yo financing: the dealer lets you drive off before the loan is funded, then calls you back to re-sign worse terms. No federal law bans it in all 50 states.