Be Smart, Be Aware and Be Prepared

Common Car-Buying Terms

~ Understanding Car Talk ~

The car business has a language all it’s own; you even might think it sounds like a foreign language. Not understanding the terminology makes car-buying even more stressful and may put buyers at risk for spending more than they should. Let’s take a look at some of the most common car-buying terms and what they really mean.

Addendum Sticker - This an added sticker that is often placed to the side of the manufacturer's sticker that lists extra options or equipment that the dealer is charging for above and beyond the MSRP or retail price.

Amount Financed - This is determined by multiplying the purchase price by the interest rate. Next, subtract that amount from the purchase price. Then add state taxes to that amount and subtract the down payment. AF = purchase price – (purchase price x interest rate) + tax – down payment.

Annual Percentage Rate (APR) - Also called a finance rate. This is the interest rate on a loan; the percentage a lender charges annually for the use of its money.

Dealer Holdback - A small percentage of a vehicle’s cost that a manufacturer pays back to a dealership after the vehicle has been sold.

Dealer Incentives - Special offers from car manufacturers to their dealers --which are usually passed on to the customer to encourage sales in a slow market or when excess inventory builds up.

Dealer Invoice - The amount a manufacturer charges its dealers for a car.

Dealer Prep Fees - Charges that are added to the purchase price of a new car to cover the cost of preparing the vehicle for sale after its transport to the dealership.

Destination Charge - The amount charged for transporting new cars from the factory to the dealership.  

Documentation Fee (DOC) - Charges intended to cover the cost of processing the paperwork involved in the sale of a car.

Down Payment - Cash paid up-front by a borrower to reduce the amount financed in a loan or lease.

Extended Warranty - An agreement to cover certain specific services beyond the life of the factory warranty.

Finance Rate - This is the interest rate on a loan; the percentage a lender charges annually for the use of its money.

Gap Insurance - Insurance that covers the difference between a vehicle’s depreciated value and the amount owed on it in case it is stolen or totaled (a difference the owner would otherwise be required to pay).

Monroney Sticker - The “window sticker” or price tag on a new vehicle.  This sticker lists MSRP price, standard features, optional features, retail price, VIN, color, etc.

MSRP - Acronym for Manufacturers Suggested Retail Price. This is what the vehicle listed for on the Monroney Sticker.

Out-the-Door Price - An OTD price includes tax, title, license, any and all fees. Iit's the bottom line of what you're going to pay.

Prepayment Penalties - Charges for paying off a loan early.

Pre-Qualify - To have a lender confirm you are eligible for a loan.

Principal - The amount borrowed.

Rebate - A partial refund on a new car purchase offered by the manufacturer or dealership. Can be deducted from the purchase price of refunded by mail after the sale has been completed.

Subprime Loans - Loans given to borrowers who represent a higher risk. Typically include a higher interest rate and down payments.

Term - The length of a lease or loan.

Trade-In Value - The price a dealer will pay for your current car when selling you a new one.

Upside Down - When you owe more on a loan than your vehicle is worth.


Doing your homework and learning “car talk” will enable you, the buyer, to better negotiate with the dealership.  Remember - be smart, be aware and be prepared!

Rexanne Smith
"Queen of Cars"
alcarqueen@yahoo.com
www.facebook.com/alcarqueen