Dealership Lingo: The Terms You Need to Know Before Buying a Car
It’s an incredibly exciting moment in everyone’s life – that moment when you’re finally going to buy or lease the vehicle about which you’ve been dreaming. You know the one, it is the car that has all the bells and whistles with no funny smelling stain in the back seat.
However, if it’s your first time buying a car you might get confused by the terms you hear the sales people tossing around. You could start feeling anxious and leave without your dream car. Don’t let your inexperience with the lingo rob you of driving your dream machine off the lot.
We’ve put together a list of terms you ought to know before stepping onto the dealership’s turf.
Car sales terms starting with A through I
Actual Cash Value (ACV) – This is the amount of money the car you are planning to trade-in is actually worth.
Acquisition Fee – This fee is charged by the dealer for initiating a lease. It is expected to cover credit reports and insurance verification, among other costs. It is generally unavoidable when leasing a vehicle.
Annual Percentage Rate (APR) – This is the percentage you will pay on your car loan each year based on the amount you borrow. It’s also called the finance rate and is the amount charged to the buyer by the lender for the use of their money each year.
All-new/Redesigned/Refreshed – These terms are often interchangeable between brands and dealers since there are no industry regulated guidelines for how to use them. Do your research to see what’s new in each model versus the previous ones.
As-is – This term lets you know that a warranty is not provided with the vehicle.
Balloon Payment or Balloon Loan – This payment happens when the terms of your loan require you to pay a large portion of the loan all at once at the end of the finance period.
Buyout Price – This is the cost of purchasing your leased vehicle at the end of the lease agreement.
Closed-end Lease – This type of lease is also known as a “walk-away” lease. The lessee either has the option of buying the car at the end of the lease or walking away without liability for unexpected reductions in sales price (except for damages to the vehicle).
Dealer Incentives – To encourage sales in a slower market, manufacturers offer special deals to the car dealerships. The dealerships pass the incentives to the buyers, enticing them to buy and reducing inventory.
Dealer Invoice – This is the amount of money a manufacturer charges dealers for their cars.
Dealer Prep Fees – Also called advertising fees, dealer prep fees are generally more open to negotiation. They are based on pre-sale service and advertising costs, which can be adjusted.
Default – An account goes into default when payments aren’t made or other terms of the financing contract aren’t met accordingly.
Destination Fees – These are non-negotiable fees incurred by the dealership from the manufacturer to have cars shipped to them.
Documentation Fees – These charges are non-negotiable fees made by the dealership to fund paperwork and processing.
Down Payment – This is the amount of cash paid up-front when you finance a lease or a loan. It helps reduce the amount of each monthly payment.
Early Termination Fee – You could incur this fee if you withdraw from a lease or loan before the scheduled end date. These penalties are generally large and equal what you would be charged to finish out the entire contracted agreement, but without the use of the car. For example, if your leased car is totaled, you may be charged an early termination fee.
Excess Mileage Charges – When you lease a vehicle, most contracts include the number of miles you’re allowed to drive the car during the leased time. These charges are incurred for going over the agreed number of miles.
Excess Wear Charge – Anything that “damages” the value of the car beyond what was originally agreed upon could result in these types of fees.
Extended Warranty – This is the agreement to cover specific repairs or services beyond the life of the manufacturer’s warranty.
Fixed (Guaranteed) Residual – This is the price you pay at the end of your lease if you decide to purchase the car. You decide on the price at the beginning of your lease.
Car sales terms starting with L through Z
Lease – This is a long-term rental agreement between a car dealership and a lessee. The contract is usually based on a set timeline or mileage. When the contract ends, the lessee typically has the choice to purchase the vehicle or return it to the dealership.
Lease Extension – This occurs when a lease agreement or contract is extended beyond the originally agreed upon terms.
Lease Payment – These payments are the fees charged for the long-term rental of a vehicle from a dealership and are generally paid monthly. The dollar amount, frequency of payments, and number of payments are all agreed upon in the lease or contract.
Lessee/Lessor – These are the official terms for each of the parties included in a lease agreement. The lessee is the person who leases the car and the lessor is the person who owns the car and is renting it to the lessee, generally a car dealership.
Monroney Sticker – When shopping at any dealership, you will find a sticker full of information on the window of each vehicle. This is called the Monroney Sticker.
MSRP – This is simply an acronym for the Manufacturer’s Suggested Retail Price. It’s the base price at the dealership for any vehicle.
Pre-Qualify – A person who is selected as eligible to receive a loan without agreeing to accept it is pre-qualified for the loan.
Principal – This is the amount of money borrowed, not including interest.
Rebate – These are one of the incentives manufacturers and dealers can use to entice people to buy cars. When applied, the car buyer will receive a partial refund either in person at the dealership or by mail after the sale.
Rent Charge – This is the part of your monthly fee that pays for the financing instead of the principal reduction.
Residual Value – This is the calculated value of a car when its lease ends.
Subprime Loans – Loans given to borrowers who are considered high-risk to the lender are considered subprime.
Term – This is the length of a lease or a loan based on the contract.
Trade-in Value – This is the amount of money a dealership is willing to pay to buy your car when you want to buy a new one.
Up-front Costs – These are the costs a buyer must pay before leaving the dealership when the contract is signed. Generally, the down payment and fees are included.
Upside Down – When a car buyer owes more on their loan than the car is worth, they are upside down. This causes problems when the buyer wrecks and totals the car. Insurance will only pay what the vehicle is worth leaving the car buyer to owe money to the lender above what insurance will pay.
Have the Knowledge, Get the Car
Now that you have all the terms you’ll need, it’s time to find the car of your dreams. Whether your family is growing and you’re looking for a Honda Odyssey or you’re looking for the simple styling of the two-door Civic Coupe, we’ve got what you need at Hendrick Honda.
Start your search online for new or used cars. If you have questions, you can reach out through live-chat, text, or email. We’re excited to talk with you about what you’re looking for and how we can help you find it.