Glossary: Financing Terms
Created by FindLaw's team of legal writers and editors | Last reviewed June 20, 2016
You should understand the terms of financing before you sign on the dotted line. Following are definitions for commonly used words and phrases related to vehicle financing.
Negotiated Price of the Vehicle - The purchase price of the vehicle agreed upon by the buyer and the dealer.
Down Payment - An initial amount paid to reduce the amount financed.
Extended Service Contract - Optional protection on specified mechanical and electrical components of the vehicle available for purchase to supplement the warranty coverage provided with the new or used vehicle.
Credit Insurance - Optional insurance that pays the scheduled unpaid balance if you die or scheduled monthly payments if you become disabled. As with most contract terms, the cost of optional credit insurance must be disclosed in writing, and, if you want it, you must agree to it and sign for it.
Guaranteed Auto Protection (GAP) - Optional protection that pays the difference between the amount you owe on your vehicle and the amount you receive from your insurance company if the vehicle is stolen or destroyed before you have satisfied your credit obligation.
Amount Financed - The dollar amount of the credit that is provided to you.
Annual Percentage Rate or "APR" - The cost of credit for one year expressed as a percentage.
Finance Charge - The total dollar amount you pay to use credit.
Fixed Rate Financing - The finance rate remains the same over the life of the contract.
Variable Rate Financing - The finance rate varies and the amount you must pay changes over the life of the contract.
Monthly Payment Amount - The dollar amount due each month to repay the credit agreement.
Assignee - The bank, finance company or credit union that purchases the contract from the dealer.
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