Glossary of Financial Definitions

Since we started this site in 2004, we’ve had many questions over the years about financial terms. This post encompasses a glossary of related motorcycle financing terms to help you educate yourself. We originally had this section in another area of the site, but since we have recently redone the entire site we are moving this glossary to our blog for easier updating in the future. As new visitors ask questions about different terms we will keep them updated on this page.

Annual Percentage Rate
The actual cost of interest on a motorcycle loan stated on a yearly basis.

Application
A motorcycle financing application is a form that lenders require you to fill out before they will approve you for a loan. It can either be a paper application or an electronic application if you submit it online. A application will ask about your current address, phone number, social security number, monthly income, employment information, and a variety of other information related to you. Paper application will also often have lenders disclosures attached to it.

Appraisal
A written analysis of the market value of your motorcycle. Sometimes when you get a motorcycle title loan you are required to get an appraisal.

Administrative Fees
Extra fees that some lenders charge to do the paperwork on your motorcycle loan.

Ballooning Interest Rate
A motorcycle financing arrangement that allows the interest rate to increase after a certain promotional terms is finished.

Bankruptcy
Refers to statutes and judicial proceedings involving a person or business that is unable to pay debts and seek the assistance of the court for financial help. Typically in a bankruptcy situation the debtor is relieved of his or her debt.

Credit Report
A report of your credit history prepared by the credit bureau and used by a lender in determining a loan applicant’s creditworthiness. There are three credit bureau’s (Equifax, Trans Union, Experian) which all operate independently. Therefore, your credit report with one credit bureau could be very different from the others.

Collateral
Assets that you own (such as a motorcycle, car or house) that is used to secure your loan with a lender. Collateral is often used in motorcycle title loans.

Co-Signer
A co-signer is a person who signs a motorcycle financing contract along with the borrower. The cosigner agrees to repay the loan if the borrower defaults.

Credit Score
A credit score is sometimes referred to as a FICO or Beacon score. It is a calculated number from the credit reporting agency that rates your credit standing and your credit worthiness. 800 is the highest score and 0-499 is typically a very bad credit profile.

Default
The failure to make your motorcycle financing monthly payments on a timely basis or to comply with other requirements of your loan.

Down Payment
Is a cash amount you pay towards your purchase. Most loans do not require a down payment, but if they do it typically is 10%-20%.

Equal Credit Opportunity Act (ECOA)
A federal law that protects you by requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Fair Credit Reporting Act
A federal law that protects you as a consumer, by regulating the reporting of consumer credit by the credit reporting agencies. It establishes procedures for correcting errors on your individual credit file.

Finance Charge
The dollar amount of interest you will pay to the lender on a loan.

Fixed Interest Rate Motorcycle Financing
A motorcycle financing arrangement that has the same annual percentage interest rate for the entire term. Fixed interest rate agreements are typically installment type.

Monthly Payments
Your monthly payment is the amount of dollars you pay each month to the lender in order to repay your motorcycle loan. Your monthly payment will include both interest and principal.

Pre-computed Interest
Finance interest charges on a installment motorcycle loan that is computed in advance, and added to the outstanding balance owed by the borrower. When combined with Rule of 78 pre-computed interest can substantially penalize you for paying off your motorcycle loan early.

Prepayment Penalty
A extra charge imposed by lenders for paying off a motorcycle loan early before the term expires.

Principal
The portion of your loan that represents the actual purchase price amount you paid for your motorcycle, not including interest for your loan. Your principal amount can include parts, accessories and other fees if you include these as part of your motorcycle loan.

Refinancing
The process of paying off one motorcycle loan with the proceeds from a new motorcycle loan. People usually select motorcycle loan refinancing to lower their payment or interest rate.

Rule of 78
A method for calculating interest charges based on the remaining term of the loan. Typically Rule of 78 charges more interest in the early month of your motorcycle loan so if you pay your loan off early you are penalized. This is why simple interest motorcycle loans are better than pre-computed motorcycle loans that use Rule of 78.

Simple Interest
Interest that is calculated on the outstanding balance of your motorcycle loan. Typically, simple interest installment loans are the best type of motorcycle financing available for consumers. Watch out for pre-computed interest and rule of 78 interest methods.

Term
The period of time which covers the life of the loan. For example, a 60 month term mean your motorcycle loan is for 5 years.

For more information, on motorcycle financing related topics browse the topics below.