Over 50 common words, terms, and phrases you should know before going to the dealership
If you’re in the market for a new car, truck, SUV or minivan, you should know what you are up against. Understanding certain commonly used terms and phrases will help you secure the best possible deal at the dealership or when going through a private dealer. Be sure to take the time you need in order to find a car that will work for you.
Browse this glossary to improve your vocabulary before heading to the dealership, or use the navigation below to look up the definition of a specific word.
A fee from the dealer to begin the purchase process (whether a lease or purchase). Typically only applied during a new car purchase.
Annual Percentage Rate (APR)
The annual interest that you will owe your lender. It’s dependent upon the federal interest rate, and can go up or down based on your credit score.
See also: Finance rate
A purchase made with the understanding that no repairs will be made to the vehicle.
Balloon Payment (or Balloon Loan)
An auto loan where the buyer only pays a portion of the total cost of a vehicle on a monthly basis, and then the balance of the loan is due at the end of time period. This chunk is known as the “balloon.”
Blue Book Value
The trade-in value of a vehicle. Kelly Blue Book is one of several guides that can determine the trade-in value of your vehicle. Others include Black Book (used mainly for wholesale), Edmunds, NADA, and TrueCar.
Also known as “bump rate” or “bumping,” it’s the difference between the rate the buyer pays for a vehicle and the rate for financing/loan that the dealer pays. The rate is usually around 1% and isn’t typically disclosed to the purchaser. By doing your homework, you can find the seller with the best bump rate.
How much it will cost to purchase a vehicle at the end of its lease. Research whether the cost of a buyout versus purchasing the vehicle outright is the better option.
Your total financed cost of a vehicle. This means vehicle plus options. The lower this number is, the lower your monthly payments will be.
The charges for any additional products or services. These charges are typically negotiable.
A failure to make car loan payments or to fulfil the financing contract terms.
The decrease of a vehicle’s value over its lifespan. On average, a new car will depreciate as much as 19 percent of its value in the first year of ownership.
The cost of transporting a vehicle from the factory to the dealership. Destination charges are non-negotiable; however, no additional destination charges should be added to the price unless the buyer has requested a long distance transport.
Financing through a bank or credit union rather than the dealership.
Upfront payment to reduce a buyer’s financing total. The recommended auto down payment is 20% or more.
Early Termination Fee
A fee paid by the buyer for quitting a lease or payment agreement early. Be warned that these are typically large payments. Also, be aware that early termination fees could be due even if your vehicle is stolen or totaled if you don’t have gap insurance.
The value left in a car after subtracting the loan balance from its market value.
A lease where you must purchase the vehicle at the end of the lease period. Not common.
A charge owed if you exceed the agreed upon mileage for a leased vehicle (usually 10,000/yr, 12,000/yr, or 15,000/yr). Be realistic about your driving habits before agreeing upon a mileage.
A fee due at the end of a lease for excessive amounts of wear, damage, or modifications made to a leased vehicle. Bad interior smells, dents, and tinted windows are all included.
Added coverage after a vehicle’s factory warranty expires, typically offered by the dealer. These warranties are negotiable and can usually be purchased up to a year after buying your vehicle.
Fair Market Value
How much your vehicle is worth in its current condition on the market.
A charge for using the bank’s or another lender’s funds to purchase a vehicle. When you buy a car, you are buying it outright from the dealership. You can either pay in cash, credit card, or acquire financing, but the sale of the car is final. It will be yours to own.
Most dealerships have financing options to choose from. They will find a bank that will give you the terms that you need in order to purchase the car so that the dealership can have it sold by the end of the day.
When you’re sure that you want the vehicle, and you have negotiated with the salesperson, it’s time to finalize the deal. This step involves signing paperwork, transferring the plate, handing over the keys, and driving off the lot in your new vehicle.
Insurance that helps cover the difference between how much a vehicle has depreciated over the course of the loan/lease and how much is still owed in the event the vehicle is stolen or totaled.
A refund or favorable rate offered to a purchaser by the manufacturer.
A long-term rental of a vehicle from a dealer for a specified amount of time or mileage. At the end of a lease, the lessee has the option of either buying or returning the vehicle depending on the lease agreement.
If you decide to lease a car, you’ll need to keep certain terms in mind. For instance, there will be a certain amount of time that you must use the car before you turn it in for a newer model. Also, you must stay within the allotted mileage for the lease. Should you wish, you can also choose to purchase the car at the end of the lease agreement.
The agreed upon monthly payment during a lease period. This amount is the total of the rent charge and depreciation, plus any local taxes.
A claim on a vehicle by a third party. This can make it difficult to sell a vehicle unless the owner deals with the lien.
The cost or value of a vehicle before any sales, specials, incentives or discounts. Pay attention to this amount and try to bargain the price down.
Miles Per Gallon (MPG)
The number of miles you can drive a vehicle on one gallon of gasoline. The MPG for city driving (i.e. driving with traffic and stop lights) vs. highway driving differs. If fuel efficiency is important to you, then you’ll want to look at how many miles per gallon a vehicle gets.
The maximum amount of miles a lessee can put on a vehicle over the course of a lease agreement.
Stands for Manufacturer’s Suggested Retail Price. This price typically doesn’t include any optional features, destination charges or taxes.
The act of trying to reduce the price of a vehicle or include extras (without an extra charge). Negotiating with a salesperson about a car’s price is expected. Learn as much as possible about the vehicle you hope to buy. Read more
New cars are typically found in a section of the dealership lot. New cars come straight from the auto manufacturer and they usually have a warranty along with them as well as rebates.
Penalties owed in the event your loan or lease is paid off early. Typically, there is no penalty if you have good credit.
To be eligible for a car loan without being required to “sign on the dotted line.”
A used car that had at least one previous owner. These vehicles may have been traded in by the owner for a newer vehicle, or it could be a leased vehicle that has been turned back in at the end of the lease cycle. Be sure to test drive any pre-owned vehicle you’re considering to make sure that it runs well and is a good fit for you.
See also: Used
The amount a buyer borrows from their lender.
Incentives provided by the manufacturer to entice buyers to purchase a vehicle. These are most often used during year-end sales or to get rid of vehicles that aren’t selling well. Rebates can include cash back offers or lower interest rates. Not all buyers will qualify.
To cash in a rebate, the buyer will need to send in a copy of their receipt to the manufacturer. Rebates typically come from the maker of the car and not the dealership.
The value remaining on a vehicle when it’s returned to the dealer or placed back on the market. This value is used to help calculate the monthly payment of the vehicle for resell.
The financing rate a buyer will be offered by a dealer.
The difference between the buy rate and the sell rate.
The price you’ll find on the windshield of a vehicle while shopping at the dealership. The sticker price is after the discounts are offered. Most vehicles can be purchased below their sticker price with negotiation.
Loans given to buyers with bad credit that have higher interest rates, bigger penalties for failing to pay car payments, and larger down payments.
The duration of a car lease or auto loan.
A fee due at the end of a loan or lease.
When a potential buyer, accompanied by a salesperson, drives a vehicle to test its quality and to see if they like the way the car performs before buying. We strongly recommend test-driving any vehicle you are considering. Make sure that you like how it feels and pay attention to how it performs on the road. Read more
The amount a dealership will pay for your used vehicle as a down payment toward the purchase of a new vehicle. Typically, dealerships will pay you less than the vehicle’s market value. Read more
The amount a buyer owes at the time of signing a contract. This is usually the down payment, plus any other fees.
Owing your financing company more money than your vehicle is worth. Also known as “negative equity.”
A vehicle that has had a previous owner.
See: Previously owned
Stands for Vehicle Identification Number, is a 17-digit number that identifies your individual vehicle. The numbers are unique and includes your vehicle’s make, model, year, body style, and engine type. They’re typically found on the windshield and driver side door.
A lease with the option to buy or walk away free from liability at the end of the term. Walk-away leases are the most common type of lease; however, you should always make sure that your lease is a walk-away lease before signing.
A guarantee from the seller of a vehicle to the buyer that promises to repair or replace agreed upon parts of a vehicle during a specified period of time. You’ll definitely want to know what the warranties are on the car that you decide to purchase or lease. Warranties can be various lengths of time, and they cover various parts of the vehicle.