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Car Buying Glossary of Terms

Michelle Naranjo
by Michelle Naranjo
April 16, 2008

– A negotiable fee, usually 1 – 2% of invoice, which reflects the cost to the dealer for advertising the vehicle. This cost is sometimes passed onto the car buyer as a line item, but may be built into the invoice price. Sometimes called a promo fee.

– APR is an acronym for annual percentage rate, which is the cost of credit (interest) paid by the consumer on an annual basis, expressed as a percentage.

– A car sold as-is has no warranty neither express nor implied. All repairs from the moment the vehicle becomes the legal property of the car buyer are at the car buyer’s expense.

– The value of your trade-in per Kelley Blue Book used car price guide. See NADA Value.

– The salesperson receives this money for selling a vehicle. This is how the average salesperson makes the bulk of their income. Some dealerships do not use commission and instead use a regular salary. Salespeople can also earn additional compensation by meeting sales quotas.

– A life insurance policy taken out by the borrower that pays off a specific amount of a loan if the borrower should happen to die during the term of the loan. For the purposes of vehicle loans, credit life insurance usually pays the full remaining loan balance at the time of death.

– Optional equipment that is installed by the dealership rather than the manufacturer or an aftermarket installer. Dealer installed options may include undercoating, fabric protection, pinstriping, appearance accessories, performance accessories, and any other item installed by the dealer before delivery.

– The published dollar amount the dealer paid the manufacturer for the vehicle. This may not reflect the actual dollar amount paid by the dealer due to holdbacks, fees, rebates, and other incentives.

– The special license plate used by dealers that allows customers to legally test-drive unregistered cars on public streets and highways.

/ – A negotiable fee sometimes passed onto customers, which covers the preparation of the vehicle for sale, such as removing plastic coverings, cleaning the vehicle, and adding fluids.

– The fee charged to the dealership by the manufacturer for transporting the vehicle from the factory to the dealer lot. The dealer does not mark up this fixed fee. This fee is almost never negotiable. All dealerships are charged the same destination fees, whether their showroom is directly across the street from the factory, or 2,000 miles away.

/ – A negotiable fee for handling the documentation and paperwork necessary to complete the sale.

– An optional warranty policy that provides coverage against specified mechanical failures and defects over a specific number of miles or by a specific period. Contrary to the name, an “extended warranty” does not necessarily extend the factory warranty and often acts as independent coverage. They are called “extended” warranties because the new coverage period starts after the factory warranty has expired. Extended warranties are closely related to vehicle service agreements and extended service agreements.

– An acronym for finance & insurance. The F&I office is where you will finalize your new vehicle purchase by working out the final paperwork with the dealership. The F&I person may assist the buyer with financing, insurance, and last minute adjustments to price.

– Factory-to-consumer incentives are provided to customers by manufacturers to assist in the selling of year-end or slow-selling models. These incentives are passed on in whole to the customer in the form of rebates, cash back, or lower interest rates. Not all customers will quality for every incentive. Sometimes called a Commercial Incentive.

– Factory-to-dealer incentives are provided to dealers by manufacturers to assist selling year-end or slow-selling models. These undisclosed incentives may be passed on to the car buyer to make slow-selling models more attractive, or they may be reserved to bolster dealership profit and cash flow.

– The total amount of interest paid over the term of the auto loan.

– Gap insurance will insure the difference between what is owed on the vehicle and what the insurance company says the vehicles is worth in the vent the vehicle is totaled in an accident or stolen. For example, if an insurance company claims a totaled vehicle is worth $10,000 and the owner owes $15,000 then gap insurance protects the owner from having to pay the $5,000 difference out-of-pocket to settle the vehicle loan.

– A credit the dealer receives from the manufacturer for selling a vehicle as a way to assist with dealer profitability and cash flow. Holdback is usually 2 – 3% of MSRP or invoice. Not all manufacturers use holdback as a dealer incentive. Sometimes known as Giveback.

– A special interest rate offered by manufacturers to customers will excellent credit histories. Not every customer may qualify for incentive rates.

– A lease is a fixed, long-term contract under which the customer makes use of a vehicle that they do not own, but instead rent from the dealership or leasing company. The advantage of a lease is that the customer only pays for the portion of the vehicle they use.

– A vehicle which is sold at a loss to draw customers to the dealership, bolster revenue, or in the hopes that the profit can be made up in financing, service, or with add-ons such as dealer installed options.

/ – A contract for vehicle maintenance over a pre-defined span of time or miles. Service plans may cover everything from routine scheduled maintenance to full mechanical coverage similar to an extended warranty. Car buyers should carefully examine the details of any service contract before purchase to ensure the service contract will be a good value. See Extended Warranty.

– A form of insurance that protects the borrower in the event the borrower cannot make the payments due to financial hardship or unexpected circumstances. See Credit Life Insurance.

– The manufacturer of a car (Mercedes-Benz, Audi, Ford, Dodge, etc).

– The minimum guaranteed value of your vehicle if used as a trade-in toward a vehicle owned by the dealership, regardless of the condition, age, make, or model of your vehicle. Sometimes used in conjunction with a Push, Pull, Drag and other promotions. This is NOT necessarily the retail value of your trade-in vehicle should you choose to sell the vehicle outright rather than trade it in.

– The family line of a vehicle (Corolla, Magnum, 3 Series, Mustang, etc). Models may have many different trims available. See Trim Line.

– An acronym for manufacturers suggested retail price. This is the retail price as determined by the manufacturer and seen on the vehicle information sticker as required to be found in the window of every new vehicle. Optional equipment and factory-installed packages are seen as line-items on the information sticker. Sometimes called sticker price. MSRP does not include financing charges, taxes, or destination charges. Dealer-installed options may increase the price of a vehicle over MSRP.

– The value of your trade-in per the NADA (National Automobile Dealers Association) used car price guide, also called the Orange Book. See Blue Book Value

– All optional equipment and packages have codes that are often used to make up packages. Option codes may be listed on the new vehicle information sticker as required to be found in the window of every new vehicle currently available.

– A promotion that implies the advertising dealer will take any vehicle as a trade-in, regardless of condition or value, usually for an advertised minimum trade-in value that will be applied to the price of a new vehicle. See Minimum Trade-In Allowance.

– See Factory Incentive (Customer).

– The quantity of total sales in any given period, usually measured monthly, quarterly, or annually. 

– The number of monthly payments on an auto loan. Typical new car loans range from 24 to 84 months, with 60 months being typical. A longer term will results in a lower payment, but longer terms increase the total amount paid over the course of the term due to interest charges.

– The legal document that shows the ownership history of a vehicle.

/ – Any item, usually a vehicle, which is traded in toward the purchase of a vehicle from a dealership. A simple way to think about a trade-in is that the dealership is buying your old vehicle, and you are buying the dealerships vehicle. The proceeds from the trade-in are applied to the purchase price of the vehicle owned by the dealer.

– The standard set of features found on a specific vehicle; not including options, special equipment, and paint. Most vehicles come in at least two trims, and some models may have many different trims. For example, the 2007 Toyota Corolla CE and the 2007 Toyota Corolla LE are two different trims of the same model car.

– A situation in which the car buyer owes more money on their trade-in than the dealership is willing to give for the trade-in. The difference is applied to the loan amount.


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