“I need the information to make financing easy to understand.”

Truck financing has a language all its own. Here's how to speak it.

You're an expert when it comes to your truck, but what about truck financing? Use the following common truck financing terminology to make informed decisions to grow your business or manage your fleet more efficiently.

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A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z 
A
Accelerated Payments

Higher initial payments reduce the principal by a greater percentage, resulting in lower payments and improved equity during the latter portion of the contract or lease.

Add-ons

Features and enhancements which may be installed on equipment.

Advance Payments

Refers to payments collected at the beginning of each payment period instead of at the end. Opposite of arrears.

Advance Percent

A percentage that reflects the amount actually loaned compared to the dealer's cost or invoice amount. (A leasing term)

Affiliate

A company having common ownership or control with another company. For example, Daimler Truck Financial and Freightliner Corporation would be considered affiliates because of common ownership.

Alterations

A condition whereby a customer modifies the equipment in some fashion.

Amortization

Spreading a payment over a period of time.

Application

A document completed by a prospective customer containing information about the customer and the equipment he/she is buying.

Arrears

On a lease account, arrears payments set the first payment to 30 days from the lease date. This is the opposite of payments in advance.

Assets

Used on the balance sheet to classify items which the entity already has or is entitled to, such as cash, receivables and owned equipment.

Availability

Relates to the time that it takes for a check to be deposited and debited against the maker's/drawer's account. It is a bank's measure of float, or the time that it takes for a check to clear through the check collection processing system.

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B
Bad Debt

Write-off relating to unpaid payments and discounted future payments.

Balloon Payment

(1) The final lump-sum payment under a retail contract. (2) A large payment at the end of the loan allowing smaller payments to be made during the term.

Bankruptcy

An action taken by a party to legally protect its remaining assets by declaring that it cannot pay its bills. Typically, in this situation, liabilities exceed assets.

Beneficiary

One who benefits from the act of another; for example, the person designated to receive property under an insurance policy or a trust.

Bill of Sale

A document issued by a manufacturer or supplier showing that the equipment has been sold to the buyer.

Binder

An insurance contract which provides temporary protection until a permanent contract can be arranged.

Buyout

The amount a lessee must pay the lessor to terminate a lease early. Usually calculated to include tax recaptures and lost revenues.

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C
Cap

A ceiling on the maximum interest rate on a loan or borrowing, which may vary from state to state.

Capital Lease

For accounting purposes, a lease in which the lessee is required to show leased assets on its balance sheet. Amount recorded is the lesser of the cost of leased assets or the present value of minimum lease payments, unless otherwise required by applicable laws or accounting principles.

Capitalized Cost

The cost of equipment to be leased plus any other initial direct costs that may be capitalized.

Captive Finance Company

A separate company which is an affiliate of a manufacturer that finances products produced by the manufacturer.

Cash Flow

(1) A measure of an organization's liquidity that compares cash inflows and outflows, often shown by adding noncash expenses to net income. (2) After-tax profit plus non-cash charges (depreciation).

Closed-End Lease

(1) A lease agreement under which the lessee (customer) bears no responsibility for the equipment's residual value at lease maturity, assuming normal wear and tear. (2) A vehicle lease in which the lessor absorbs the entire risk of the residual. (3) A lease where the lessee has turn-in conditions, but not residual, responsibility.

Collateral

Equipment or other tangible assets like a house, car or stocks pledged as security for a loan or other obligation.

Corporate Resolution

A document signed by a registered corporate officer (usually a corporate secretary), designating company representatives who may sign legal commitments.

Corporate Secretary

An officer charged with keeping the corporation's records and official correspondence and with giving and receiving notices, countersigning documents, etc.

Corporation

An entity made up of one or more shareholders who are not personally liable for the obligations of the corporation. Because a corporation is considered distinct from its shareholders, a corporation can sue in its own name and be sued, and is also a taxable entity.

Credit References

Banks and suppliers listed on the credit application. Lenders may contact them to check an applicant's payment habits.

Cross-Corporate Guarantee

Guarantee by an affiliated corporation (usually the parent) of the borrower to minimize lender's risk in the event of default.

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D
DBA

Abbreviation for "doing business as." Trade name used by an individual or business (e.g., Joe Smith DBA Smith Packaging), which is not recognized as a separate legal business entity.

Debt

An obligation resulting from the borrowing of money or from the purchase over a period of time of goods or services and may include payments under a lease.

Default

A condition whereby the customer does not make the payments as required by the contract.

Deficiency Balance

The difference between the amount owed under the contract or lease and the net proceeds received from the sale of the equipment.

Down Payment

Money paid by the borrower toward the equipment purchase to reduce the amount to be financed.

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E
Electronic Funds Transfer (EFT)

The electronic movement of funds.

Equipment

Tangible assets such as tractors, trucks or trailers.

Extension

The process of deferring one or more monthly payments in return for an extension fee and the borrower's promise to pay at a later date.

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F
Fair Market Value

(1) The current market price for a piece or type of equipment. (2) Actual dollar market value of leased vehicle at lease maturity (may also be stated as the realized value). (3) The theoretical amount of periodic rental that should be paid for an asset. Used by the IRS as a guideline in Revenue Ruling 55-540.

Financial Statements

Reports presenting a company's financial condition: balance sheet, income statement, cash flow statement and footnotes.

FMV (Fair Market Value) Lease -
Closed-End Lease

A true lease for tax purposes. The FMV is a walk away lease, which means that at the end of the lease, the customer may have no obligation to Daimler Truck Financial beyond returning leased assets and meeting any specific return-vehicle condition requirements.

Future Value

The expected value at a specified future date of a payment or a series of payments which are invested at a specified rate until such future date.

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G
GAP

Guaranteed Asset Protection or Deficiency Balance Protection. A contract which eliminates or reduces the monetary liability between actual cash value of the vehicle and the payoff amount on a retail contract or lease when the vehicle is deemed a total loss or stolen.

General Partnership

An unincorporated business owned by two or more persons or entities. Normally, any partner can sign contracts on behalf of the partnership, and each partner is personally liable for the obligations of the partnership. Partnerships are non-taxable entities; all gains and losses flow through to the partners.

Grace Period

The period of time after the due date that a lender allows for receiving the monthly payment without penalty.

Guarantor

The party that promises to make payments to the lender in the event the borrower does not.

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I
Implicit Rate

(1) The discount rate derived from equating the present value of rentals and unguaranteed residual to current value, per FASB 13. (2) Unique discount rate that equates the present value of a series of cash inflows (lease payments, residual) to the present value of the cash outflows (equipment costs). (3) Internal Rate of Return (IRR) of the fair market value, the minimum lease payments and the unguaranteed residual. This rate is used as the lessor's discount rate for purposes of the 90 percent test.

Interest

The difference between the total loan payments and original loan amount (principal), excluding any third party expenses such as insurance premiums, taxes and filing expenses.

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L
Late Fee

A charge that is assessed if payment has not arrived on the due date or within a specified grace period. See your specific contract or lease for details.

Lease

(1) A form of financing in which a lessee can use equipment over a period of time in return for making periodic payments to a lessor. (2) An agreement through which an owner of a vehicle conveys the right to rent and possess the vehicle to another party.

Lease Maturity

End of lease term.

Lease Payments

Also called rentals. The amount the lessee pays the lessor in return for using the leased equipment.

Lease Schedule

An attachment to a master lease, stating specific equipment and lease terms. Additional equipment may be leased by the execution of additional lease schedules.

Legal Title

A document which certifies the legal owner of a piece of equipment.

Lender

The party who lends money to the borrower.

Lessee

(1) The party who uses the equipment in a leasing transaction and makes periodic payments to the owner or lessor. (2) The renter of a leased vehicle.

Liability

A broad legal term which encompasses all types of debts and other obligations.

Lien

A security interest on property to protect the lender in the event of default.

Lienholder

Person or company having a security interest in a financed vehicle or other asset until the contract is paid off or other specified conditions are fulfilled.

Limited Liability Company (LLC)

A hybrid business organization in which the owners (known as Members or Managers) are not personally liable for the LLC's obligations. An additional benefit is that an LLC is not considered a taxable entity.

Limited Partnership

A Limited Partnership is a partnership comprised of one or more General Partners who manage the business and who are personally liable for partnership debts, and one or more Limited Partners who contribute capital and share in profits but who take no part in running the business and incur no personal liability for partnership obligations.

Lockbox

A collection system in which a bank processes and deposits payments to Daimler Truck Financial's account while providing payment information for Direct Cash Application of proceeds.

Loss

Deficiency resulting from the sale of equipment. Tax treatment may be capital or ordinary, depending on type of property and period held.

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M
Master Lease

A lease agreement under which a lessee may lease additional equipment by the execution of additional lease schedules and each such schedule constitutes a separate lease of the equipment described therein.

Maturity

The date on which the principal amount and all remaining on a debt or obligation becomes due and payable.

Monthly Payment

Amount due monthly on a contract.

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N
Note and Security Agreement / Retail Installment Contract

A contract through which a customer purchases the vehicle as owner, financing a portion of the purchase price and granting a security interest in the vehicle to the finance source.

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O
Obligation

A duty imposed by law or contract; any written promise or contract to pay money or to do a certain thing.

Open-End Lease

(1) Any lease agreement under which the lessee (our customer) is responsible for the residual value of the equipment upon lease maturity; if the equipment sells for less than the residual, the lessee must account for the difference, but if the equipment sells for more than the residual, the lessee is entitled to the overage. A Terminal Rental Adjustment Clause (TRAC) Lease is an example of an Open-End Lease. (2) A vehicle lease in which the lessee is responsible for a specific residual amount at the end of the lease term.

Operating Lease

For accounting purposes, a lease in which the lessee is not required to show leased assets on its balance sheet.

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P
Parent Corporation

A corporation that has at least one subsidiary corporation.

Partner

A member of a partnership. Ordinarily refers to a General Partner, but could also be used to refer to a Limited Partner.

Payoff

The amount owed to date, to terminate the loan account and remove the lienholder on title.

Payment in Advance

First payment due on delivery.

Payment in Arrears

First payment due 30 days after delivery.

Payment Stream

The aggregate amount of rents under a lease.

Personal Guarantee

A document held by the finance company in a finance transaction allowing it to pursue an individual for payment should the customer default.

Power of Attorney

A written instrument whereby one person appoints another as their agent and confers authority to perform certain specified acts on their behalf.

Principal

The amount of the original loan paid to the borrower by the lender. Also called loan proceeds.

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R
Rate Factor

A percentage amount that, when multiplied by the original equipment cost, produces the monthly rental.

Repossession

The situation whereby a lender reclaims and physically removes the equipment from the control of the borrower or lessee; usually due to default.

Residual Value

(1) Estimated dollar value of leased vehicle at lease maturity, fixed at lease inception. (2) The future estimated value of equipment on lease.

Retail Installment Contract / Note and Security Agreement

A contract through which a customer purchases the vehicle as owner, financing a portion of the purchase price and granting a security interest in the vehicle to the finance source.

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S
Sales Tax

A state or local tax on equipment sales as well as other commercial goods. Also called use tax in certain cases.

Sales Tax Exemption

A document issued by taxing authorities to certain entities not required to pay tax, like municipalities and religious organizations.

Secretary's Certificate (Corporate Resolution)

Formal proof that the board of directors of a corporation has passed a Resolution.

Simple Interest

Interest on the original principal which is calculated only on the unpaid balance and paid periodically over the contract term.

Skip Payment

Allows for the skipping of payments during a slow or inactive business period for the customer.

Sole Proprietorship

A form of business in which one person owns all the assets of the business. The sole proprietor is personally liable for all debts of the business. No legal entity is created, just a DBA (the name the individual does business under).

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T
Tax Exempt Organization

An organization that may issue or incur tax-exempt obligations. State and local governments are tax-exempt organizations.

Term

The number of months from contract or lease inception to termination.

TRAC (Terminal Rental Adjustment Clause) Lease

An open-end lease in which the residual amount is fixed and guaranteed to Daimler Truck Financial. The lessor may still treat this as a true lease. Any shortfall between booked and realized residual is the responsibility of the lessee. Consult with your accountant or tax advisor for any accounting or tax implications.

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U
Usury Laws

State laws regulating the maximum rate of interest that may be charged to customers in a specific state on specific types of loans.

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