We understand how tricky terminology can get in the auto finance industry. Even the word “term” can mean different things in different circumstances. To help, the Center for Auto Finance Excellence has compiled the following list of common terminology used across the industry to serve as a resource, especially for those who are new to auto finance and with a particular focus on securitization terms. This is an ever-expanding list, which is based on public information, so if there is a term you think belongs in this glossary, let us know by emailing firstname.lastname@example.org.
ABS or Asset-Backed Securities mean bonds or notes backed by financial assets, such as auto loans.
Administrative Purchase Payment means, for any Administrative Receivable:
(1) in the case of a Scheduled Interest Receivable the sum of
(A) all remaining Scheduled Payments on the receivable, and
(B) all past due Scheduled Payments less the rebate that would be payable to the obligor on the receivable were the obligor to prepay the receivable in full on that day.
(2) in the case of a Simple Interest Receivable, a payment equal to the Amount Financed less that portion of all payments made on or prior to the last day of the prior monthly period allocable to principal.
Administrative Receivable means a receivable which the servicer is required to purchase as a result of a breach of a covenant which materially and adversely affects any receivable held by a trust. This can be specified within a Pooling and Servicing Agreement or which a servicer has elected to repurchase pursuant to a Trust Sale and Servicing Agreement.
Aggregate Amount Financed means the aggregate Amount Financed under the receivables held by a trust.
Aggregate Receivables Face Amount is the sum of the Principal Balances of all outstanding receivables, other than Liquidating Receivables, held by a trust on that date.
Amount Financed means, for a receivable, the aggregate amount advanced toward the purchase price of the financed vehicle, including accessories, insurance premiums, service and warranty contracts and other items customarily financed as part of retail automobile instalment sale contracts and purchase money loans and related costs less:
(1) (A) in the case of a Scheduled Interest Receivable, payments due from the obligor prior to the cutoff date allocable to principal, and
(B) in the case of a Simple Interest Receivable, payments received from the obligor prior to the cutoff date allocable to principal, and
(2) any amount allocable to the premium for physical damage collateral protection insurance covering the financed vehicle required by the seller or the servicer.
APR is the acronym for annual percentage rate of a receivable.
Basic Servicing Fee Rate connotes the Basic Servicing Fee Rate charged by a trust and usually specified in a prospectus or its supplement.
Business Day means any day other than a Saturday, Sunday or any other day on which federally chartered banks may, or are required to, remain closed.
Captive means a finance company that is typically is a subsidiary of car manufacturer. The Captive’s sole purpose is to provide financing to consumers of the parent company’s products (i.e. Harley Davidson Financial Services).
Certificate Distribution Account means any account so designated and established and maintained pursuant to a Trust Sale and Servicing Agreement.
Charge Off means a debt that is considered uncollectible and is subsequently written off.
Collection Account means any account so designated, and established according to a Trust Sale and Servicing Agreement.
Controlling Class means, for any series of securities, the class or classes of securities of that series designated in the related prospectus supplement.
Credit Risk means a risk due to uncertainty that an obligor will be able to meet his financial obligations, such as paying an auto loan.
Dealer Reserve means a commission or payment that dealers receive for generating a loan. There are various methods for calculating this payment.
Dealer Markup means the difference between the lowest offering price among the dealers and the higher price dealers charge consumers.
Default occurs when an obligor fails to make interest or principal payments as previously agreed.
Delinquency is failure to repay a financial obligation in a timely manner.
DTI or Debt-to-Income Ratio indicates the amount of debt as compared to the amount of income of a borrower. Lenders typically calculate DTI when qualifying borrowers for loans.
Designated Accounts means the Collection Account, the Note Distribution Account, and any reserve account for which the funds on deposit are invested in Eligible Investments.
Discount Rate means the present-value, per-annum rate for payments on receivables.
Distribution Date means the date or dates specified in a company prospectus supplement on which a trust makes payments on notes and certificates.
Excess Payment means, for a Scheduled Interest Receivable, the portion of a payment on the receivable in excess of the Scheduled Payment thereon which is does not incur late fees, prepayment charges or other similar fees or charges.
Flats or Flat Fees are an alternative to Dealer Reserve, in which dealers receive a fixed commission for originating loans.
Foreign Person means a nonresident alien, foreign corporation or other non-United States person.
Headline Risk means a risk that media coverage of a company-related event can conversely affect a company’s valuation.
Lease is the term for when a financier buys a car on behalf of the customer, and then leases the vehicle to the customer in return for monthly rental payments. At the end of the lease term, the customer has two options: either keep the car by paying the final installment or refinancing the residual value or return the vehicle to the lessor.
Liquidation Proceeds means, for a Liquidating Receivable, all amounts realized for that receivable, net of amounts, that are required to be refunded to the obligor on that receivable.
Liquidating Receivables means a receivable:
(A) as to which the servicer has (1) reasonably determined, in accordance with customary servicing procedures, that eventual payment of amounts owing on that receivable is unlikely, or (2) repossessed and disposed of the financed vehicle, and
(B) that the servicer has charged off.
Nonprime (sometimes also referred to as subprime) is used to classify borrowers, rates or holdings that fall into a lower-quality category of the lending market than Prime. Nonprime loans typically carry more credit risk and thus have a higher interest rate than Prime loans.
Note Pool Factor means, for each class of notes, a seven-digit decimal which the servicer will compute prior to each distribution for the notes indicating the remaining outstanding principal balance of the notes, as of the close of the distribution date, as a fraction of the initial outstanding principal balance of the notes.
Originations means a process in which a borrower submits a variety of financial information to the lender to determine the type of loan for which the borrower is eligible and what interest rate he/she will pay.
Outstandings is the balance of a group of unpaid interest-bearing loans.
Payment Ahead means, for a Scheduled Interest Receivable, any Excess Payment, not representing prepayment in full of the receivable, that is of an amount so that the sum of the Excess Payment, together with any unapplied Payments Ahead, is equal to or less than three times the Scheduled Payment.
Payment Ahead Servicing Account means any account so designated and maintained pursuant to a Trust Sale and Servicing Agreement.
Pooling and Servicing Agreement means, for each trust, a Pooling and Servicing Agreement dated as of the closing date between the seller-servicer and the depositor, as amended and supplemented from time to time.
Prepayments means Excess Payments other than a Payment Ahead.
Prepayment Surplus means, on any distribution date on which a Prepayment is to be applied for a Scheduled Interest Receivable, that portion of the Prepayment, net of any rebate to the obligor of the portion of the Scheduled Payments attributable to unearned finance charges, which is not allocable to principal.
Prime is a classification of borrowers, rates or holdings as high-quality or with a high credit score. The most credit-worthy borrowers are considered prime.
Principal Balance means, as of any date for any receivable, the Amount Financed minus the sum of either:
(1) in the case of a Scheduled Interest Receivable,
(A) that portion of all Scheduled Payments due on or prior to that date allocable to principal,
(B) any Warranty Payment or Administrative Purchase Payment received on or prior to such date to the extent allocable to principal and
(C) any Prepayment applied by the servicer to reduce the Principal Balance of that receivable, or
(2) in the case of a Simple Interest Receivable,
(A) that portion of all payments received from the related obligor on or prior to that date allocable to principal and
(B) any Warranty Payment or Administrative Purchase Payment received on or prior to such date to the extent allocable to principal.
Receivables Principal Balance means, with respect to a receivable, as of any date, the present value of the scheduled monthly payments on the receivable, with the receivable being discounted from the last day of the calendar month in which payments are to become due to that date at the greater of the Discount Rate and the APR of the receivable.
Record Date means, for any distribution date, the close of business on the date immediately preceding the distribution date, or if definitive securities are issued, the last day of the preceding monthly period.
Related Documents means the indenture, the Transfer and Servicing Agreements and other similar and associated documents for a trust.
Revolving Period means the time specified in a prospectus or prospectus supplement during which a trust will reinvest collections in additional receivables rather than distributing collections to investors. In some cases, a Revolving Period is no longer than three years from the date of an issuance of a series of securities.
Scheduled Interest Receivables means receivables pursuant to which the payments due from the obligors during any month are allocated between finance charges and principal on a scheduled basis, without regard to the period of time which has elapsed since the preceding payment was made, using the actuarial method.
Scheduled Payment means, for a Scheduled Interest Receivable, the payment set forth in that receivable due from the obligor during any month.
Securities Act generally refers to the Securities Act of 1933, as amended.
Securitization means a process of turning assets into securities – financial instruments that can be readily bought and sold in financial markets.
Short-Term Note means a note which has a fixed maturity date not more than one year from the issue date of that note.
Simple Interest Receivables means receivables which provide for the allocation of payments between finance charges and principal based on the actual date on which a payment is received.
Subprime (sometimes also referred to as nonprime) is used to classify borrowers, rates or holdings that fall into the lowest-quality, non-specialize category of the lending market. Subprime loans typically carry more credit risk and thus have a higher interest rate than Prime loans, and, in some cases, Nonprime loans, yet have less risk and lower rates than Deep Subprime or Buy Here Pay Here loans.
Subvention means a process by which an automaker subsidizes a consumer in an effort to sell cars. Lenders may, for example, offer cash-back offers to those who buy the cars.
Tax Non-Entity means a trust in which all of the certificates of that trust which are owned by the depositor, and the depositor and the servicer agree to treat the trust as a division of the depositor and hence disregarded as a separate entity for purposes of federal, state and local income and franchise taxes.
Tax Partnership means a trust in which the depositor, the servicer and the applicable holders agree to treat certificates as equity interests in a partnership for purposes of federal, state and local income and franchise taxes.
Tax Trust means a trust in which the depositor, the servicer and the applicable certificateholders agree to treat the certificates of the trust as equity interests in a grantor trust for purposes of federal, state and local income and franchise taxes.
Transfer and Servicing Agreements means, for each trust, its agreements, which, in the case of auto finance securitizations, usually include a Pooling and Servicing Agreement, a Trust Sale and Servicing Agreement, a trust agreement and an administration agreement.
Trust Indenture Act refers to the Trust Indenture Act of 1939, as amended.
Trust Sale and Servicing Agreement means, for each trust, the Trust Sale and Servicing Agreement, dated as of the closing date, among the servicer, the depositor and the trust, as amended and supplemented from time to time.
Warranty Payment means, for a Warranty Receivable:
(1) in the case of a Scheduled Interest Receivable, the sum of:
(A) all remaining Scheduled Payments on that receivable, plus (B) all past due Scheduled Payments minus the sum of:
(A) the rebate that would be payable to the obligor on that receivable were the obligor to prepay that receivable in full on that day, and
(B) any Liquidation Proceeds for that receivable previously received, to the extent applied to reduce the Principal Balance of that receivable, or
(2) in the case of a Simple Interest Receivable, the Amount Financed minus the sum of:
(A) that portion of all payments received on or prior to the last day of the prior monthly period allocable to principal, and
(B) any Liquidation Proceeds for that receivable, to the extent applied to reduce the Principal Balance of that receivable.
Warranty Receivable means a receivable which must be repurchased by either the depositor or the seller as a result of a breach of a representation or warranty for that receivable which materially and adversely affects the interests of any securityholder in that receivable.