Glossary of Terms

Buying a car is a big step.

Within this page, we list the terms used within the industry,
to help guide you with your purchase.



Acceleration Clause
A clause in the loan agreement that requires the borrower to repay the loan immediately under certain conditions.

Agreement of Sale
An agreement of sale constitutes the specific terms of the purchase of a vehicle by the buyer from the seller. These requirements include the future date of full payment and the amount at which it is to be sold.

All-in Pricing
A law that requires the value for a car to include everything with no additional charges.

Amortization Amount
The total amount owed on a loan agreement. It's calculated by deducting the car’s expected price at the end of the term from the car’s original price.

The debt repayment process with a fixed schedule on regular payments over a given period of time.

Annual Percentage Rate (APR)
The yearly cost of borrowing expressed as a proportion of the total car price.

As Is
A car that’s sold without a guaranteed level of quality regarding maintenance, condition, roadworthiness, and capability to register it.

Any property of the borrower, including a vehicle, property or stocks, which can be used to repay the loan.


Bad Credit
A credit score, which is below the average, that indicates a risk to some creditors. However, it’s still possible to secure a loan with bad credit.

Balloon Payment
A balloon payment is an above average one-time payment at the end of the loan term which results in lower payments for the years prior to the balloon payment.

Beacon Score
This is a number which is generated by Equifax through a complex algorithm based off the FICO model that will reflect the current status of your credit history. It will give a lender an idea of where you stand with your credit, and how likely you are to repay a loan. The higher the score, the better. Beacon 9.0 is the current version that is being used.

Bill of Sale
A document provided by the seller of the dealership to record the details and time of a vehicle sale.

Black Book
The black book is used to determine the resale value of the current or future trade-in of a vehicle for a particular location. Commonly used in Canada and U.S.


Certified Pre-Owned (CPO)
A used vehicle that passed the verification process and an inspection certified by the manufacturer.

Property owned by the borrower supporting the loan that can be confiscated by the lender in the event of default.

Another individual who incurs equal obligation with the borrower for a loan.

Credit Bureau
A company or agency that monitors your credit history and provides information upon request.

Credit History
A history of your financial relationships which can be used to determine your ability to repay loans.

Credit Score
A score between 300 and 900 which is calculated by using the FICO formula to determine the risk associated with lending to a borrower.

Credit Scoring System
A particular system that is used to ascertain the creditworthiness of a person based on credit history and statistical data.

A person’s ability to repay loans on time.


A company that is authorized by the manufacturer to sell certain vehicles.

Debt-to-Income Ratio
A ratio that expresses the percentage of a borrower’s loan compared to their comprehensive income.

The inability of the individual to repay the loan under the terms and conditions that constitute a breach of the agreement.

Car loan payments that are late or past the due date.

Demo Car
A vehicle that has already been registered by a dealer or wholesaler for the purpose of allowing potential customers to test drive it.

The gradual wear and tear of the vehicle due to age, which reduces the market value of the vehicle.

Destination Charge
A commission charged by the manufacturer for shipping a car to the dealership in a precise location. This commission is part of the MSRP or the listed price of a vehicle.

The history of each particular vehicle that is given to customers upon purchase. It includes past damages, title issues, and repairs.

Down Payment
An initial installment which reduces the amount financed on a car loan.


Based on funds you’ve previously paid on a car loan. For example, if the value of your vehicle is more than you owe, you’ll have positive equity in your vehicle.


Finance Charge
The total sum of interest charges you’ll incur over the life of a loan agreement.

FICO Score
Your FICO score is based on mathematical models which will determine how likely you are to repay a loan in the eyes of a lender. The score ranges between 300 and 850 and can be found on Equifax and TransUnion credit bureaus. The higher the score, the better. FICO is an acronym that was named by the company that developed the algorithm: Fair Isaac Company.


Grace Period
A period after the due date, when you can still make a payment without being charged a penalty fee.

Gross Monthly Income
The overall monthly income of a borrower before any deductions have been excluded such as income tax, child support, and insurance.


Interest Rate
The annual interest rate on a car loan, which is expressed as a percentage of 100.

Invoice Price
The amount that a dealership pays for the car when purchasing from the manufacturer.


Late Payment
A vehicle loan payment that has not been made on time.

Another way of financing the vehicle in which a person borrows the car for a period, however, the leasing company remains the owner of the vehicle.

The individual who under the lease agreement has temporary use of a vehicle.

A company that provides temporary access to a vehicle for an individual during the lease agreement.

Ownership of a vehicle by a financing company until a debt has been repaid.

The difference between loan amount and vehicle value that is expressed as a percentage.


The difference between the sales price and the invoice price set by the dealership.

MSRP (Manufacturer’s Suggested Retail Price)
Manufacturer’s recommended retail price for a vehicle, which may vary depending on the configuration.


Net Effective Income
A borrower’s total net income minus provincial and federal taxes.


Power of Attorney
A legal document authorizing a third party to act on behalf of another.

The total amount owed on a vehicle excluding interest.

Proof of Income
Documents which confirm the borrower’s income, including bank statements, employment verification or pay stubs.

Proof of Residence
Documents which confirm borrower’s place of residence, including a driver license, utility bills or lease agreement.

Payment-to-Income Ratio
The percentage of the individual’s income that will be allocated to repay a car loan.


Residual Value
The expected value of the vehicle at the end of the loan term.

Recreational Vehicle Loan
A type of loan used for financing a vehicle for recreation.

The process by which the borrower wishes to change the terms of an existing car loan, including the interest rate, monthly payment or loan term.

The repossession of the vehicle, which occurs as a result of nonpayment debt.


Service Charge
Expenses incurred by the dealership to deliver the car or from the financial company to fund the loan.

Any operations or services that are performed by the lender during the term of the loan contract, including collections, payment receipts, and statements.

Additional documents that may be required by the lender to approve the loan for the borrower, such as proof of insurance, evidence of income or any other information.

Subprime Loan
A type of loan with a higher interest rates, usually due to the borrower’s low credit score.


The total length of the loan agreement between the borrower and the lender to repay the debt.

The document obtained by purchasing a vehicle that proves legal ownership of a car.

Title Loan
An alternative type of loan, where the lender is the legal owner of the vehicle until the auto equity loan is paid in full.

Trade-in Value
The value of a used car that will be a part of the trade between you and the dealership.


The situation in which the balance owed on the vehicle is actually more than the current value of that car.

A law that requires lenders not to exceed the provincial maximum interest rate, which can vary depending on the age of the borrower or type of vehicle.


Vehicle Identification Number
A unique 17-digit code assigned to every vehicle in Canada. Often referred to as the VIN.


A written promise from the manufacturer or dealer to replace or repair components on a purchase, free of charge within a given period.

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