Making Sense of Dealership Speak – Car Buying Terms You Need To Know

Whether you’re buying a new car or a used one, it helps to have some understanding of the terminology used by dealerships. 

Car sales ‘lingo’ can be confusing, and the unfamiliar words and acronyms often add to the stress of buying a car. 

We’ve put together this glossary of terms to help prepare you for some of the common terms you might hear at every step of the car buying process.  Knowing these in advance can help you negotiate a better price and walk away with the car you want feeling confident that you have got a good deal.

Our glossary is split into three parts:  the car search/shopping; the negotiation; and finance/delivery.

Part One – Car Shopping

Allocation

The new car inventory a manufacturer allows the dealer to purchase.

Basic Warranty

The terms established by each manufacturer to repair vehicles within a specific mileage and/or time.  All factory-installed and some dealer-installed parts are covered under this warranty.

Blue Book

Officially named the Kelley Blue Book (KBB), this is used to look up the fair market price of the vehicle.

Buyers Guide

This is a document that informs the customer of warranty coverage, exclusions, repair obligations, and disclosures and must be displayed on the window of all used cars.

CarFax Report

A CarFax report is a vehicle history report that helps you make an informed purchasing decision. It includes a vehicle description, accident details, mileage verification, recall checks, and the number of previous owners.

Certified Pre-Owned

A certified pre-owned car is a low-mileage, accident-free used car that is typically less than seven years old and has been reconditioned to meet strict manufacturer or dealer standards. They also typically have less than 80,000 miles on the odometer.

Extended Warranty

A contract that protects the car owner against mechanical failures and breakdowns.  Extended warranties are also referred to as Vehicle Service Contracts.  This warranty will pay for covered repairs after the manufacturer’s warranty has expired.

Lemon Law Vehicle

A vehicle with problems that has been repurchased by or had its price renegotiated with the manufacturer.  The state marks its official records or issues a title brand for the lemon law vehicles.

MSRP

Manufacturer Suggested Retail Price.  The retail price of the vehicle as recommended by the manufacturer.  Often called the sticker price or list price.

Off-Lease Vehicle

Vehicles that are returned at the end of the lease term.  Usually, an off-lease vehicle is either sold to the lessee by the dealership, auctioned off, or sold as a used vehicle.

Recon/Reconditioning

The vehicle was recently taken in on trade or acquired and is going through service, inspection, detail, etc to be put on the lot.  This process can take anywhere between 2 days – 2 months depending on the vehicle’s condition and can sometimes be “pushed through” or rushed to be made available for sale.  They will often not be priced until the work is complete so they can include the cost of repair in the pricing.

Service Loaner

A new car that was used to loan to customers when their vehicle was receiving extended service at the dealership.  Once the car reaches a certain amount of mileage, it becomes a retired service loaner and is for sale at a discounted price.

Window Sticker/Monroney Sticker

Sticker on the vehicle that contains the description of the vehicle, equipment, options, and MSRP.

Vehicle Identification Number (VIN)

The VIN is a 17-digit identification number that’s unique to each car. It includes the code for the year, make, body, style, and engine type of the vehicle. The number can be found on the driver’s side door jamb or under the windshield. You can use this number to run a check on the car’s history.


Part Two – The Negotiation

So, you’ve found the car you want, now begins the negotiation.  To best prepare yourself, here are the most common terms that you should know.

As-Is

The vehicle has no warranty and the dealer is not liable for any issues in any way.

Cap Cost

The capitalized cost of a lease vehicle is the actual negotiated selling price of the vehicle.  It may also include any acquisition fees, negative equity from a trade-in, and additional money to be paid out of the deal.

Capitalized Cost Reduction

The amount of any trade-in allowance, rebate, noncash credit, or cash that reduces the gross capitalized cost.  Can also be shown as a down payment.

Closed-End Lease

A type of lease in which the lessee is not responsible for the value of the vehicle at the end of the lease.  The lessee is liable for excess mileage and excessive wear and use.  This is also called the guaranteed trade-in, net lease, or walk-way lease.

Dealer Incentives

Unadvertised cash incentives given by the manufacturer to the dealer to help boost the sales of a specific model.

Destination Charge

The amount the automaker charges the dealer to deliver a new vehicle from the factory.  This is often a fixed, unavoidable cost to the dealer and usually cannot be negotiated.

Equity

When a customer owes less money on their loan than the vehicle is worth.

Lease

A vehicle agreement that allows you to drive the vehicle without paying a large sum of cash or take out a loan.  To lease the car, you are required to make a down payment – typically less than 20% of the car’s value – followed by a monthly payment for the term of the lease.  When the term expires, you return the vehicle.

Lien

A claim against a vehicle by another party that utilizes the vehicle as a security for repayment of a loan or other claim.  Usually, will affect the ability to transfer ownership.

Mark-up

The difference between the cost of the merchandise and its initial retail price.  The amount of profit received by the dealer on each car.  Mark-up can be calculated by subtracting the invoice price from the selling price.

MSRP

Manufacturer Suggested Retail Price – the retail price of the vehicle as recommended by the manufacturer.  Often call sticker price or list price.

Open-End Lease

A lease that required the lessee to pay any difference between the residual value of the vehicle and the fair market value of the vehicle at the end of the lease.

Purchase Agreement

A contract signed by the buyer and seller that indicated the conditions under which an item or property will be sold.

Rebates/Incentives

Discounts provided by the automaker to help encourage additional vehicle sales.  Can be in the form of cash or special low-interest rates.

Recall

When the manufacturers receive notice of defects on their vehicles, they issue a recall notice to inform owners of the defects and suggest improvements that can or must be made to improve the safety or functionality of the vehicle.  Most manufacturer recalls can be repaired at no cost to the owner.

Retail Contract

The terms and conditions of a vehicle sale agreed upon between consumer and dealer.

Trade Disclosure

A vehicle Trade Purchase Disclosure form is used to properly notify a customer purchasing a used vehicle of the vehicle’s prior use from when it is traded.

Trade-In value

The value that a car dealership will give for an existing vehicle as a deposit on a new car.


Part 3 – Finance & Delivery

The financing of your new vehicle can either be completed through a personal auto loan or through the dealership via a lease or financing loan.  Be aware of the following terms.

Annual Percentage Rate (APR)

This annual interest rate is the amount the lender charges you on the money borrowed. It’s based on the Federal rates, with some additional fees added in. This amount is based on your credit score.

Add-Ons

Products or services added by dealerships.  Common examples are rust-proofing, dent protection, extended warranties, etc.  Add-ons drive up the sticker price of a vehicle, but their actual cost IS negotiable.

Aftermarket

Replacement or add-on purchases for a product after the original sale.  Includes replacement parts, accessories, and appearance parts.

Amount Financed

The agreed-upon sale price of the vehicle, plus any charges for taxes, title, license fees, service contracts, and insurance that may be included in the deal.  Less any down payment and/or net trade-in allowance.  This is the amount that is subject to finance charges.

Dealer Prep Fees

Charges – usually negotiable – added to the purchase price to cover the cost of preparing the purchased cars for delivery to the customer.  It includes detail, filling with gas, walking the customer through how the vehicle works, etc.

Down Payment

This is the money you put down on a vehicle to reduce how much needs to be financed. The more you put down, the less you have to pay each month.

Gap Insurance

Insurance that covers the difference between a vehicle’s depreciated value in a loan or a lease and the amount owed on it in the case it is stolen or totaled, a difference the owner or lessee would otherwise pay to the lessor.

Residual Percentage

Expressed as a percentage of MRSRP, this is the vehicle’s expected future value at the end of a lease of a specific term and specific mileage. For example, an average car depreciates in value by about 50% over a 3-year lease. The remaining 50% is its residual percentage.

Residual Value

The lease-end value of the vehicle set at lease inception by the lessor.  “Future expected value” of the vehicle based on certain age, mileage, and condition.

Term

The length of a leasing or finance agreement or how long you will make payments each month for the duration of the contract.

Termination Fee

When the loan or lease is ended, you could be charged a termination fee. Ask what this fee is upfront, so there are no surprises.

Title

An official document stating the legal owner(s) of the vehicle.

We-Owe

A form completed when something was promised to the customer during the sale that cannot be delivered until later, eg, window tinting, tires, wheels, etc.


Now you’re armed with this glossary, put these terms to work, and start car shopping with OneRequest!

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