Plain-English auto finance terms.
APR, money factor, residual, cap cost, gap insurance, and the rest. Each definition links to the tool or guide where the term actually matters. New entries on the first of every month.
Acquisition fee, explained
A non-negotiable charge by the leasing company to set up and process your lease, typically between $395 and $995.
Amortization, explained
The schedule showing how each loan payment is split between interest and principal over time.
APR vs interest rate
The interest rate is the cost of borrowing; APR includes fees and shows the true annual cost.
Bill of sale, explained
The legal document that records the transfer of a vehicle from seller to buyer and price paid.
Cap cost reduction, explained
The upfront cash you put down on a lease to lower your monthly payment and the total amount you'll finance.
Capitalized cost (cap cost), explained
Cap cost is the lease equivalent of purchase price, the starting number your monthly payments are calculated from.
Certified Pre-Owned (CPO), explained
A CPO car is a used vehicle inspected and backed by the manufacturer with an extended warranty and other perks.
Comprehensive vs collision insurance, explained
Comprehensive covers non-crash damage like theft or weather; collision covers damage from accidents you cause or hit objects.
Credit tier bands, explained
The brackets lenders use to sort borrowers by credit score and assign different interest rates to each group.
Dealer doc fee, explained
A dealer-imposed charge for processing paperwork, often $200 to $800, that's legal in most states but sometimes negotiable.
Debt-to-income ratio (DTI), explained
Your debt-to-income ratio shows lenders what percentage of your monthly income goes toward debt payments including your proposed car loan.
Deductible, explained
The amount you pay out of pocket before your car insurance kicks in to cover the rest of a claim.
Disposition fee
A charge your leasing company collects when you return the vehicle at lease end, typically $300 to $500.
GAP insurance, explained
GAP insurance covers the difference between what you owe and what your insurer pays if your car is totaled.
Hard pull vs soft pull
A soft pull checks your credit without affecting your score; a hard pull creates an inquiry that can lower it.
Holdback, explained
A percentage of MSRP that manufacturers refund to dealers after a vehicle is sold.
Lease-end equity, explained
The difference between your leased car's market value and buyout price when the lease term ends.
Lemon law, explained
State consumer protection rules that let you return or get compensation for a defective new car that can't be fixed.
Liability limits, explained
The maximum dollar amounts your car insurance will pay if you injure someone or damage their property in an accident.
Loan-to-value (LTV)
LTV is the ratio of your loan balance to your car's current market value, expressed as a percentage.
Mileage allowance, explained
Your lease mileage allowance caps how many miles you can drive before paying steep per-mile penalties at turn-in.
Money factor, explained
Money factor is the lease equivalent of an interest rate, expressed as a tiny decimal that looks confusing but isn't.
MSRP vs invoice, explained
The sticker price a manufacturer suggests versus the price the dealer officially paid for the car.
Odometer disclosure, explained
Federal law requires sellers to provide a signed, accurate odometer reading on every vehicle title transfer to prevent fraud.
Payoff quote, explained
The exact amount required to own your financed car outright, including interest accrued through a specific payoff date.
Prepayment penalty
A fee some lenders charge if you pay off your auto loan early or refinance before a set date.
Principal, explained
The actual amount you borrowed to buy your car, before interest, fees, or any other charges get added.
Rate lock, explained
A rate lock guarantees your approved interest rate for a set period, protecting you from rate increases while you shop.
Residual value, explained
Residual value is what the leasing company predicts your car will be worth when your lease ends.
Simple vs precomputed interest
Two methods for calculating loan interest that determine whether paying off your loan early actually saves you money.