Glossary

An acceleration clause is a provision in a loan agreement that gives the lender the right to demand immediate payment of the entire outstanding balance of the loan if the borrower breaches certain conditions of the agreement. The clause allows the lender to accelerate the payment schedule and collect the full amount owing on the loan rather than waiting for the borrower to make payments over time.

An acceleration clause is commonly found in loan agreements for mortgages, car loans, and other types of secured loans. In some cases, the clause may also allow the lender to collect additional fees or charges if the borrower defaults. Borrowers should be aware of the acceleration clause and understand the conditions that could trigger it.

It’s important to make payments on time and comply with the loan agreement terms to avoid the risk of default and triggering the acceleration clause.

The contract document outlines the terms of the purchase of the unit between the purchaser and the seller – also known as a bill of sale.

This refers to the total cost of a loan, including interest charges and other fees, expressed as an annual percentage rate. It is a standardized measure used to help borrowers compare the true cost of different loans, taking into account not only the interest rate but also any upfront or ongoing fees or charges associated with the loan.

The APR is a useful tool for borrowers to determine the true cost of borrowing over the full term of the loan, allowing for informed decision-making when selecting a loan product.

An asset refers to any valuable property or item that an individual or business owns and can be used to generate income or repay debts. In the context of loans, an asset is often pledged as collateral to secure the loan, which means that the lender can seize the asset if the borrower fails to repay the loan. Examples of assets include real estate, vehicles, stocks, bonds, and other investments.

Auto loan approval is the process by which a lender evaluates a borrower’s creditworthiness and ability to repay a loan to determine whether or not to offer them an auto loan. During the approval process, the lender considers several factors, such as the borrower’s credit history, income, employment status, and debt-to-income ratio. Once approved, the lender will provide the borrower with a loan offer, including details on the loan amount, interest rate, and repayment terms.

Bad credit refers to a below-average credit score that may indicate a higher risk of defaulting on a loan. A credit score is a numerical rating assigned to an individual based on their credit history, and a lower score suggests a higher risk of default. Having bad credit can make it difficult to secure loans or credit cards, and may result in higher interest rates or less favorable terms.

However, it is still possible to secure a loan with bad credit, and some lenders specialize in working with borrowers who have less-than-perfect credit. If you have bad credit, it’s important to take steps to improve your credit score over time, such as paying bills on time, reducing debt, and monitoring your credit report for errors or inaccuracies.

A bank fee for an auto loan refers to a fee charged by the bank or lender to cover the cost of processing and administering the loan. This fee is typically included in the total cost of the loan and can vary depending on the lender and the specific terms of the loan agreement. It is usually listed as a separate item on the bill of sale or financing contract.

A balloon loan is a type of loan that involves making smaller payments over the life of the loan, with a large lump sum payment due at the end. The lump sum payment is typically larger than the regular payments made throughout the life of the loan. Balloon loans are often used for large purchases such as a car or a house, where the borrower may not have the funds to make large monthly payments but expects to have a large sum of money available when the loan matures.

A bill of sale is a legal document that serves as proof of the transfer of ownership of a unit, such as a vehicle or equipment, from the seller to the buyer. The bill of sale outlines the terms of the purchase, including the purchase price, payment terms, and any warranties or guarantees that are included. It is an important document for both the buyer and seller, as it provides a record of the transaction and protects their legal rights.

A bill of sale is also commonly referred to as an agreement of sale or purchase contract, and it may be required by state or local laws to complete the transfer of ownership. It’s important to carefully review the terms of the bill of sale and make sure that all information is accurate and complete before signing.

Black Book or Canadian Black Book is a reference guide used by car dealerships, lenders, and other automotive industry professionals to determine the current or future trade-in or resale value of a vehicle within a specific geographic region. The guide takes into account various factors, such as the vehicle’s make, model, year, mileage, and overall condition, to provide an estimated value that can be used in negotiations between buyers and sellers.

Black Book is widely recognized in Canada as a reliable and trusted source for vehicle valuation, and it is often used by financial institutions to set loan amounts or to determine the value of a vehicle that is being used as collateral. The term “Black Book” is sometimes used interchangeably with “Blue Book,” which is a similar publication that is commonly used in the United States.

Blue Book refers to a guidebook or a database that provides information about the value of used cars. It is often used by buyers and sellers in the automotive industry to determine a fair price for a particular vehicle based on its make, model, age, mileage, and condition.

The term “blue book” is derived from the name of the company that first published such guidebooks, which were originally bound in blue covers. In Canada, the equivalent of the Blue Book is the Canadian Black Book.

Collateral refers to any asset or property owned by the borrower that is pledged to secure a loan. It serves as a form of security for the lender, as it can be seized and sold to recover the amount owed if the borrower defaults on the loan. Collateral can take many forms, including real estate, vehicles, equipment, or other valuable assets.

The value of the collateral is typically determined by an appraisal, and lenders may require the borrower to maintain insurance on the collateral to protect against damage or loss. The use of collateral can make it easier for borrowers with less-than-perfect credit to obtain a loan, as it reduces the lender’s risk.

It’s important for borrowers to carefully consider the risks and benefits of pledging collateral before agreeing to a loan, as failure to repay the loan can result in the loss of the collateral.

A cosigner is an individual who agrees to assume equal responsibility for a loan with the primary borrower. The cosigner typically has a good credit history and income, and their role is to provide additional security to the lender in case the borrower is unable to repay the loan. If the borrower defaults on the loan, the lender can pursue payment from the cosigner. \

Cosigners are commonly used for loans when the primary borrower has a limited credit history, a low credit score, or a high debt-to-income ratio. Having a cosigner can increase the chances of approval for the loan and can also result in a lower interest rate.

It’s important to note that being a cosigner is a serious financial obligation, and cosigners should fully understand their responsibilities before agreeing to cosign a loan.

A credit bureau is a company or agency that collects and maintains information about individuals’ credit history. Credit bureaus gather data from various sources, including lenders, credit card companies, and other financial institutions.

This information is used to create credit reports that contain details about an individual’s credit accounts, payment history, and other financial information. Credit bureaus use this data to calculate credit scores, which are used by lenders and other financial institutions to evaluate an individual’s creditworthiness.

The three main credit bureaus in Canada are Equifax, TransUnion, and Experian. It’s important for individuals to regularly review their credit reports to ensure that the information is accurate and up-to-date. If there are any errors or inaccuracies, they should be reported to the credit bureau as soon as possible to avoid any negative impact on credit scores.

Credit history is a record of a borrower’s credit accounts and borrowing and repayment activities over time. It includes information on credit cards, loans, mortgages, and other credit lines that a borrower has opened and how they have managed them.

Credit history is tracked by credit reporting agencies and is used by lenders to assess the borrower’s creditworthiness and ability to repay a loan. A good credit history indicates that the borrower has a history of paying their debts on time and in full.

In contrast, a bad credit history may indicate that the borrower has defaulted on payments, has a high level of debt, or has a history of late payments. Lenders use credit history to evaluate loan applications and to determine the interest rates, terms, and conditions of the loan. Borrowers need to maintain a good credit history by making payments on time, avoiding high levels of debt, and using credit responsibly.

A credit score is a numerical rating between 300 and 900 that is used by lenders to evaluate a borrower’s creditworthiness and ability to repay a loan. In Canada, the credit score is calculated using the FICO formula that takes into account the borrower’s credit history, current amount owing, length of credit, and other factors.

A high credit score indicates that the borrower has a history of responsible credit management and is less risky to lend to, while a low credit score indicates that the borrower may have a higher risk of defaulting on payments. Lenders use credit scores to assess loan applications, set interest rates, and determine the terms and conditions of the loan.

Borrowers can improve their credit score by making payments on time, paying down debt, and managing credit responsibly. Borrowers should monitor their credit score regularly to ensure accuracy and identify potential areas for improvement.

A dealer admin fee, also known as a dealer fee or documentation fee, is a fee charged by a car dealership to cover the cost of processing paperwork related to the sale of a vehicle. This fee is typically added to the purchase price of the vehicle and can vary in amount from dealership to dealership.

A dealer partner is a car dealership that works in partnership with a financial institution or lender to offer financing options to car buyers. The dealership acts as an intermediary between the buyer and the lender, facilitating the loan application and approval process.

In some cases, the dealership may also provide financing options directly to the buyer through its in-house financing department. The dealer partner typically receives a commission or other financial incentive from the lender for each loan that is originated through their partnership.

A dealership is a business that sells new or used vehicles to consumers. Dealerships are typically authorized by manufacturers to sell their vehicles and may offer financing, trade-in options, and other services related to the sale of vehicles.

Debt-to-Income Ratio (DTI) is a financial metric that compares a borrower’s monthly debt payments to their monthly gross income. This ratio is calculated by dividing the borrower’s total monthly debt payments by their monthly gross income. The result is expressed as a percentage, and it represents the proportion of the borrower’s income that is used to pay off their debts.

Lenders use the DTI ratio to evaluate a borrower’s ability to manage their current debt load and assess their eligibility for a new loan. A lower DTI ratio is generally viewed as more favorable, as it indicates that the borrower has more disposable income and is less likely to default on loan payments.

To calculate your DTI ratio, add up all of your monthly debt payments, including credit card balances, car loans, student loans, and any other outstanding debts, and divide that total by your gross monthly income. A healthy DTI ratio is typically less than 36%, although some lenders may have different guidelines. If your DTI ratio is too high, you can improve it by paying down your debts or increasing your income.

“Declined” refers to the decision made by a lender or financial institution to reject a borrower’s application for credit, such as an auto loan. This decision can be based on various factors, including the borrower’s credit history, income, debt-to-income ratio, and other factors that may indicate a higher risk of defaulting on the loan. When a borrower is declined for an auto loan, they will not be able to obtain financing from that particular lender or institution.

Default occurs when a borrower fails to meet the terms and conditions of a loan agreement, such as missing scheduled payments or failing to fulfill other obligations. It can result in penalties, legal action, and damage to the borrower’s credit score. Lenders may take steps to collect the amount owed, including seizing collateral or pursuing legal action

Delinquency refers to a loan that is past due and has not been paid on time. It can hurt a borrower’s credit score and may result in late fees or other penalties. If a loan remains delinquent for an extended period, the lender may consider the loan to be in default, which could result in legal action or other consequences.

Disclosure refers to the act of revealing or making known any relevant information about a product, service, or transaction to the buyer, to enable them to make an informed decision. In the context of finance and loans, disclosure usually refers to the mandatory and detailed information provided by the lender to the borrower, outlining the terms and conditions of the loan, including interest rates, fees, repayment terms, and any other charges associated with the loan. In the context of vehicle purchases, disclosure could refer to any known information about the vehicle’s history that is provided to the buyer, such as previous accidents, damages, or repairs, or any title or ownership issues.

A documentation fee is a fee charged by a dealership or lender to cover the cost of preparing and processing the necessary paperwork for an auto loan, including applications, contracts, and registrations. It is also sometimes referred to as a “doc fee” and is typically a flat fee, although it can vary by dealer or lender. This fee is separate from other fees associated with a car purchase, such as taxes or licensing fees.

A payment made at the time of purchase reduces the total amount financed through the loan. The down payment can be made in cash or by trading in another vehicle or asset and is typically a percentage of the purchase price of the item being financed.

The difference between the value of an asset and any liabilities associated with it. In the context of auto loans, equity is the value of a vehicle that is owned outright or has a loan balance lower than its current market value. Positive equity occurs when the value of the vehicle exceeds the amount still owed on the loan.

An extended warranty is an additional service contract offered by the dealer or manufacturer that provides coverage for repairs and maintenance beyond the original manufacturer’s warranty. This warranty typically covers certain repairs, parts, and labor costs for a specified period or a number of miles driven.

Finance Charge refers to the total cost of borrowing, which includes interest charges and any other fees associated with a loan. This amount is calculated based on the loan’s interest rate, term, and any additional charges. The finance charge is usually expressed as a dollar amount and represents the total amount of money a borrower will pay in addition to the principal amount borrowed.

Full coverage insurance refers to a type of auto insurance policy that includes both mandatory coverages, such as liability insurance, as well as optional coverage, such as collision and comprehensive insurance. In Canada, the mandatory coverage required by law varies by province but typically includes coverage for liability and accident benefits.

Collision insurance covers damages to the insured vehicle caused by a collision with another vehicle or object, while comprehensive insurance covers non-collision incidents, such as theft, vandalism, or weather damage. Together, these coverages provide more comprehensive protection than mandatory insurance alone.

“Fully approved” refers to the stage in the loan process where the lender has completed all necessary checks and has confirmed that the borrower meets all requirements for the loan, including credit history, income verification, and any other relevant factors. At this stage, the lender has given final approval for the loan and is ready to disburse the funds to the borrower.

GAP (Guaranteed Asset Protection) warranty is an optional insurance policy that covers the difference between what you owe on your car loan and what the car is worth if it is totaled or stolen. This coverage can help protect you from financial loss in the event of a total loss or theft of your vehicle.

Front-loaded interest is a type of loan repayment structure where a significant portion of the interest is paid at the beginning of the loan term. This means that in the early years of the loan, the majority of the payment goes towards paying off the interest rather than the principal balance of the loan. As a result, the borrower pays more interest overall and may have a slower repayment of the principal balance in the early years of the loan.

Gross Monthly Income refers to the total amount of income earned by an individual before any deductions such as income tax, Canada Pension Plan (CPP), Employment Insurance (EI), or other payroll deductions are made. This includes income from all sources, including employment, investments, and other forms of income.

Insurance is a contract between an individual (the policyholder) and an insurance company, where the policyholder pays a premium in exchange for protection against financial losses arising from various events or situations. In the context of auto loans, insurance is typically required to protect both the borrower and the lender in case of accidents or damage to the vehicle. Different types of insurance include liability insurance, collision insurance, comprehensive insurance, and more.

An interest rate is a percentage charged by a lender on the principal amount of a loan, expressed as an annual rate. It represents the cost of borrowing money and is typically determined based on the borrower’s creditworthiness and the risk associated with the loan.

Invoice price refers to the amount that a dealership pays to the manufacturer for a new vehicle. This is often different from the sticker price or MSRP (manufacturer’s

A lead provider is a company or service that collects and sells leads to businesses or organizations. In the context of auto finance, a lead provider may gather information on potential car buyers who are interested in financing a vehicle, and then sell that information to lenders or dealerships who may be interested in reaching out to those customers with loan offers or vehicle options.

A lease is an agreement between the lessee (user) and the lessor (owner) for the use of a vehicle for a specified period in exchange for periodic payments. Unlike financing, a lease does not result in ownership or equity in the vehicle, but it can offer flexibility and lower monthly payments. At the end of the lease term, the lessee may have the option to purchase the vehicle, return it to the lessor, or lease a new one.

A lender is an individual or an institution that provides funds to a borrower with the expectation that the borrowed amount, along with interest, will be repaid in the future. In the context of auto loans, the lender is typically a bank, credit union, or other financial institution that provides financing to a borrower for the purchase of a vehicle. The lender will typically assess the borrower’s creditworthiness and ability to repay the loan and may require collateral such as the vehicle itself to secure the loan.

A lessee is a person or entity that enters into a lease agreement with the owner of an asset, such as a vehicle. The lessee is granted the right to use the asset for a specified period in exchange for regular payments but does not assume ownership of the asset.

The lessor is the owner of the vehicle who grants the lessee the right to use the vehicle for a specified time through a lease agreement.

In the context of auto finance, liability refers to the legal responsibility a borrower assumes when taking out an auto loan. Specifically, it refers to the borrower’s obligation to repay the loan in full, including any interest and fees, over the term of the loan. If the borrower fails to repay the loan according to the terms of the loan agreement, the lender may have the right to take legal action against the borrower to recover the remaining balance owed.

A licensing agency is a government agency responsible for issuing licenses or permits for certain activities or professions. In the context of car loans, the licensing agency is typically the provincial or territorial agency responsible for issuing driver’s licenses and vehicle registrations. This agency may also be responsible for collecting certain fees related to car ownership, such as vehicle registration fees and taxes.

A lien is a legal claim on the vehicle by a lender or other party with a financial interest in the vehicle. The lienholder has the right to repossess or sell the vehicle if the borrower defaults on the loan or fails to meet other obligations outlined in the loan agreement.

However, the lienholder does not have actual ownership of the vehicle and cannot use or sell it for any other purpose than to recover the outstanding debt. Once the debt is fully paid, the lienholder releases the lien and the borrower assumes full ownership of the vehicle.

The loan-to-value ratio (LTV) is a financial measure used by lenders to evaluate the risk of a loan by comparing the amount of the loan to the appraised value of the asset being purchased. In the context of auto financing, the LTV ratio is the loan amount divided by the vehicle’s value, expressed as a percentage. This ratio helps lenders determine the amount of financing they are willing to offer based on the value of the vehicle being used as collateral.

This refers to the amount of income that remains after all mandatory deductions, such as income taxes, CPP, and other required payments, have been taken out. It is the borrower’s actual income available for spending or investing.

Negative equity refers to a situation in which a borrower owes more on a loan, such as an auto loan than the vehicle is currently worth. This typically occurs when the borrower finances the purchase of a vehicle with a long-term loan or when the vehicle depreciates more quickly than the borrower pays off the loan. Negative equity can make it difficult to sell or trade in the vehicle as the borrower would have to pay the difference between the amount owed, and the value of the vehicle to satisfy the loan.

MSRP (Manufacturer’s Suggested Retail Price) is also known as the suggested retail price or the sticker price, MSRP is the price recommended by the manufacturer for the sale of a new vehicle.

Mark-up refers to the amount added by the dealer to the invoice price of a vehicle to determine the selling price. It is the difference between the invoice price paid by the dealer to the manufacturer and the price at which the vehicle is sold to the customer. The markup is typically expressed as a percentage of the invoice price.

A manufacturer warranty, also known as a factory warranty, is a guarantee provided by the vehicle manufacturer that covers the repair or replacement of specific components or systems of the vehicle during a specified period or mileage limit. This warranty is included in the purchase price of a new vehicle and can be transferred to subsequent owners within the specified time or mileage limits. The coverage typically includes the powertrain, engine, transmission, and other major vehicle components. The specifics of the warranty coverage can vary between manufacturers and models.

NSF stands for “Non-Sufficient Funds”. It refers to a situation where a payment is attempted from a bank account, but there are not enough funds available in the account to cover the payment. This can result in a bounced check or a declined transaction.

An open loan is a type of loan that allows the borrower to make prepayments or pay off the entire loan amount at any time without any penalty, strings, or fees attached. This type of loan is typically used for short-term financing, such as for a car or personal loan.

Open loans can be beneficial for borrowers who may have a fluctuating income or want the flexibility to pay off their debt early. However, open loans typically have higher interest rates compared to closed loans, which are loans that have set terms and penalties for prepayment.

This is a mandatory inspection required for a vehicle that is being registered in a province or territory different from where it was originally registered.

It ensures that the vehicle meets the safety and environmental standards of the new province or territory, and provides peace of mind to buyers and lenders that the vehicle is roadworthy and compliant with local regulations. It is typically conducted by a certified mechanic or inspection facility, and the vehicle must pass the inspection before it can be registered in the new province or territory.

The payment-to-income ratio is the percentage of a borrower’s income that would go toward the repayment of a loan. It is typically calculated by dividing the monthly loan payment by the borrower’s monthly gross income.

This ratio is an important factor that lenders consider when evaluating a borrower’s ability to repay a loan. A high payment-to-income ratio may indicate that a borrower may have difficulty making their loan payments on time, while a low payment-to-income ratio may indicate that a borrower has a good ability to repay their loan.

Positive equity refers to a situation where the value of an asset, such as a car, exceeds the amount owed on any outstanding loans or financing. In other words, it’s when the car’s current market value is higher than the outstanding loan balance. Positive equity can be beneficial if you are looking to sell or trade-in your car as it can provide you with a down payment towards a new vehicle or cash in hand.

PPSA stands for the Personal Property Security Act, which is a Canadian law that governs the creation and enforcement of security interests in personal property. The act establishes a system of registration for security interests in personal property and provides rules for determining priority among competing security interests. The purpose of PPSA is to protect the interests of both creditors and debtors in secured transactions.

The principal is the amount of money borrowed on a loan or owed on a debt, and it serves as the basis for calculating interest charges. In the context of a car loan, the principal is the amount that the borrower owes the lender, which includes the amount borrowed to purchase the vehicle plus any additional fees or charges added to the loan. As the borrower makes payments on the loan, the portion of each payment that goes towards reducing the principal will increase over time, while the portion that goes towards interest will decrease.

Pre-approval refers to the preliminary process of determining how much money a borrower is eligible to receive from a lender before formally applying for a loan. The lender will review the borrower’s credit score, income, and other relevant factors to make a preliminary assessment of the borrower’s creditworthiness and the loan amount they may be eligible to receive. Pre-approval can give borrowers an idea of what they can afford and help them make informed decisions about purchasing a vehicle.

Documentation that shows a borrower’s income, such as pay stubs, tax returns, or bank statements, to verify their ability to make loan payments.

Documentation that verifies a borrower’s place of residence, such as a driver’s license, a recent utility bill, or any other legally recognized document that displays the borrower’s address. This documentation may be required as part of the loan application process to confirm the borrower’s residency status.

Registration is the process of applying for and obtaining a license plate and registration certificate from the provincial or territorial transportation ministry, which allows a vehicle to be legally driven on public roads. The registration process typically involves providing proof of ownership, proof of insurance, and payment of applicable fees.

The registration certificate includes important information such as the vehicle’s make and model, VIN (Vehicle Identification Number), and license plate number. It is important to keep the registration certificate and license plates up-to-date and in the vehicle at all times while driving.

A replacement warranty is a type of warranty that provides coverage for the replacement of a defective product with a new one, rather than repairing the existing product. This type of warranty is often used for expensive items such as electronics or appliances.

If the product fails within the warranty period and cannot be repaired, the manufacturer or retailer will replace it with a new one. The terms and conditions of replacement warranties can vary, so it’s important to read the warranty information carefully before making a purchase.

In the context of auto loans, “shot-gunning” refers to the practice of submitting loan applications to multiple lenders at the same time. This is typically done in the hopes of obtaining loan approval from at least one lender, but can also result in multiple credit inquiries which can negatively impact the borrower’s credit score.

TDSR stands for Total Debt Service Ratio. It is a financial metric used by lenders to determine the borrower’s ability to repay a loan. TDSR is calculated by dividing the total debt obligations of the borrower (including the proposed loan) by the borrower’s gross annual income. The resulting percentage is then used by lenders to assess the borrower’s risk level and ability to repay the loan. A lower TDSR is generally considered more favorable by lenders, as it indicates that the borrower has a lower level of debt relative to their income.

The total period covered by a loan agreement, during which the borrower is expected to make regular payments to the lender until the loan is fully repaid.

Upside-down refers to a situation in which the amount of money owed on a loan for a vehicle is more than the current market value of the vehicle. This is also known as being “underwater” on the loan. It is the opposite of having equity in the vehicle, which occurs when the current value of the vehicle is more than the amount owed on the loan.

The amount of money a dealer will credit towards the purchase of a new vehicle in exchange for the customer’s current vehicle.

The legal document that proves ownership of a vehicle. It is issued by the government or relevant authority and is also known as the vehicle’s registration or ownership certificate. Sometimes also known as the “Pink Slip”.

Tire and Rim Protection is an optional product that can be purchased to provide coverage for damage to the tires and rims of a vehicle due to road hazards such as potholes, nails, and debris. The protection may cover the cost of repairs or replacements for damaged tires and rims, depending on the specific terms of the policy.

Wholesaling generally refers to the business practice of buying goods or merchandise in large quantities, usually at a discounted price, from manufacturers or distributors and then reselling them in smaller quantities to retailers or other businesses for a profit.

In the context of the automotive industry, wholesaling typically refers to the sale of vehicles in bulk from one dealer to another or a wholesale auction, rather than to individual consumers.