Auto Loan Lingo A-Z Part 1
written by Credit-HQ ExpertEvery industry has its own specialized language. But when you go to buy a car, you have to learn to speak in the language of car dealers. While some of the terminology of the auto world is understandable, much of it sounds like gibberish. So let’s take a moment and break down what some of these terms actually mean.
- Add Ons
When you shop at a dealership for a car, there will be lots of “extras” that they will try to entice you with. Since these extras are added to the car, the cost of the extras are also added to the price. Common add ons that people buy would include a sunroof, an upgraded stereo system, tinted windows, rear window wipers, Sirius Radio, On Star or some other kind of GPS system. Very often, these extras are overpriced compared to having them added by someone other than the dealership. It’s a way for the dealership to get the price of the car up.
- Amount Due at Lease Signing
While you pay for a lease month to month, there are up front costs to be paid when you set up the car lease including the security deposits, taxes and fees. These are due when you sign the lease.
- Annual Percentage Rate (APR)
If you take out for a car loan, this is the interest rate you will pay stated as a yearly percentage.
- Acquisition Fee
When you “acquire” a car by lease, you have to pay for the administrative costs like your credit report, verification of your insurance and costs of drawing up the lease documents. These costs are charged to you as one fee.
- Asking Price
The price on the sticker. The advertised price. Usually you can negotiate this down.
- Blue Book
A book that is the bible of what cars are worth. Otherwise known as the Kelly Blue Book. This price is the “book value” of the car.
- CARFAX Document
An essential history document that tells you everything about the vehicle’s past including who owned it and what accidents it has be in. You need the VIN number to order the report. (See part 2)
- Certificate of Title
The definitive document showing who owns the car.
- Closed End Lease
This is sometimes called a “walk away” type of lease because under this kind of contract, the borrower can bring the car back when the lease term is up and only pay some fees. There is more risk to the dealership so this kind of lease is not as common as an open-ended lease.
- Dealer
This is the car lot or the professional who sells or leases cars as their primary type of business. What do you expect from the car dealer when you have bad credit?
- Dealer Hold Back
This is a fancy term for the mark up the manufacturer lets the dealers sell their cars for. It is their profit margin, which is usually in the two percent range of the cars MSRP (See part 2)
- Dealer Incentives
“Perks” manufacturers use to encourage dealers to sell their cars. Necessary because often dealers can sell a variety of makes and models so these incentives “buy favor” for certain manufacturers when the care salesman meets the public.
- Dealer Invoice
This is what the dealer paid for the car from the manufacturer. Sometimes this amount is lowered through rebates and other sales incentives.
- Dealer Prep
If the dealer puts these charges on your invoice, they are for getting the car ready to sell by cleaning it and doing any repairs. For a new car, you should never see dealer prep.
Click here to see Part 2: Auto Loan Lingo A-Z Part 2
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