You know the feeling…the first few weeks in a new job and everyone speaks in what feels like a foreign language jumbled together with secret codes and random letters that obviously mean something super important.
I don’t know about you, but I HATE the feeling of being the person in the room who doesn’t know what is going on. I tell myself over and over and over again, “You’ve got to fake it ‘till you make it.”
Everyone else seems so comfortable and capable, and the topics seem complicated and overwhelming. My style is to sit back and observe quietly, take a lot of notes, and say to myself that, if these dorks learned it, I certainly can too.
Of course, once you learn it, you realize that they are no smarter than you at all. It is all just lingo, acronyms, jargon, and other short-hand ways of conveying information. WTF? Ha! Perfect example!
Your car is likely the second most expensive thing you own, and probably not something you buy with any regularity. So, it is a big decision and a big deal. Adding acronyms and unfamiliar terms into such an important transaction can be intimidating and frustrating.
If you are thinking of refinancing your car, I don’t want you to feel like I did. Information is power. So, I thought I would share with you a few of the things I learned when I started working in the auto finance biz.
APR –Annual Percentage Rate: The cost of the interest paid by the borrower (YOU) per year. It is always stated as a percentage, such as “6.99% APR” meaning, you will pay 6.99% of the current loan amount each year you are paying off your loan.
ATF – Amount to Finance: The amount of money that you are borrowing to buy your vehicle.
Backend: (Does that word make anyone else giggle?) Backend items are additional add-ons like insurance, maintenance contracts, accessories, extended service contracts or warranties, etc.
Cash Back Refi: A type of refinancing that allows you to use the equity you have in your vehicle to get cash back while refinancing your car loan. In other words, when you refinance, you pull money out of the equity you have in your vehicle to use for something else like; maybe you have a credit card you want to pay off or unexpected expenses like medical bills, wedding costs, legal fees, etc.
DTI – Debt-to-Income Ratio: The percentage when you divide your monthly payments by your monthly gross income. So, if you make $3,000/month and you have $1,500 in payments each month, your DTI is 50%, meaning it takes 50% of your monthly income to make your payments.
FICO Score: A score based on your credit and payment history, and calculated by a credit bureau agency used by potential lenders to help determine your ability to make payments. The better your FICO score, the more likely you are to be approved for a loan. Your FICO score isn’t the only factor though. So, if you have bad credit, the terms might be different, but many people can still get a loan.
Finance Charge: The total amount of interest that is paid over the full term of the vehicle loan. If your loan is the whole enchilada, the interest is the enchilada sauce. To calculate how much of your payment is going towards interest (the sauce) and how much towards principal (the enchilada) throughout your loan term, you can find an “amortization” calculator here.
GAP: Coverage for the difference between what is owed on your vehicle and what the vehicle is worth if it is totaled in an accident or stolen and not recovered. It is different from, and in addition to, regular insurance coverage.
MSRP a.k.a. Sticker Price: An acronym/term for “Manufacturer’s Suggested Retail Price.” This is the retail price as determined by the manufacturer.
NADA, Book, or Kelley Blue Book Value: The retail value of your car set by one of the vehicle valuation guides (NADA-National Automobile Dealers Association, or Kelly Blue Book Value).
LTV – Loan-to-Value Ratio: The percentage of your loan amount to a vehicle’s value. For example, if a car is worth 25,000 and the loan is for 20,000, your LTV would be 80% (20,000 ÷ 25,000).
PTI – Payment-to-Income Ratio: The percentage of your income that an auto loan payment will require. For example, if your monthly income is $2,000 and your loan payment is $500, Your PTI is 25% ($500 ÷ $2,000).
POI – Proof of Income: Paystubs, employment verifications, bank statements, and other items that prove your income.
POR – Proof of Residence: Utility bills, driver license, lease agreement or any other documentation that displays proof of where you live.
Refinancing: Financing an existing car loan with a new loan. Refinancing happens when a borrower wants to lower their monthly payment or interest rate, change their auto loan term (length of loan period), or pull some cash out of their equity. The new loan pays off the old loan and creates a new loan, with new terms, and a new lender.
Stips: Short for stipulations, these are items that are required by a lender to fund a loan. May include proof of income, proof of residence, registration, proof of insurance or any additional information the lender may feel is necessary to approve your loan.
Term: The number of monthly payments on a loan. Car loans range from 24 to 84 months, with 60 months being average.
Total Cost: The cost of a lease agreement or car loan, including, the price of the car, all fees, add-ons, taxes, and interest charges.
Upside-down: When the balance owed on a vehicle is more than the current value of that vehicle (no bueno).
Now you have all the info you need so you won’t have to fake it ‘till you make it!
Did you know that you can have your own financial Service Representative to help you through the whole process? You can! get started here or at 800.260.5355. You will be so glad you did.
*Talk to you later