Glossary of Automobile Buying and Financing | |
Glossary of terms related to automobile buying, leasing, financing, driving, and insuring. | |
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| Term | Definition |
| acquisition fee | Related to car leasing, this is a fee that is included in all leases, but rarely discussed or disclosed. It is usually added to the price of the car and is financed with the lease. The amount is typically $495-$995 depending on the lease comapany and price of the car. It is not negotiable. |
| credit history | A record of a person's past and present credit accounts, payment history, outstanding balances, and bankruptcy notices. Negative information can remain in a person's history for up to 10 years. |
| credit score | A numerical representation of a person's credit history. Poor debt management, late payments, and high credit card balances can result in a low score. Lenders use credit scores to grant loan approvals and set interest rates. |
| dealer | New-car dealers are independent businesses, not owned by car manufacturers, but authorized by them. Dealers are also licensed by the state in which they operate. By law, all new car sales must be conducted through an authorized, licensed dealer. |
| deductible | Related to auto insurance, a deductible is the amount that you pay if you file a claim. Higher deductibles result in lower insurance premiums because you pay a higher share of the cost of a claim. |
| disposition fee | Related to car leasing, it's a fee included in most leases that is paid at the end of a lease when a vehicle is returned to the lease company. It's an administrative fee and is not negotiable. The amount is usually about $350. |
| DMV | Department of Motor Vehicles. This the name applied (in most states) to the agency responsible for registering and licensing motor vehicles of all types. They also provide drivers' licensing services. |
| gap insurance | Related to car financing, gap insurance or gap waiver covers the difference between the amount owed on your loan or lease and the insurance payout if your leased car is stolen or totaled in an accident. It comes automatically with most leases, but almost never with loans. |
| holdback | Holdback is a kind of refund to car dealers by manufacturers when vehicles are sold. It is usually about 2%-3% of either invoice price or MSRP. It adds to a dealer's profit but is normally not disclosed or negotiated, although some customers think otherwise. |
| incentives | Car manufacturers frequently offer limited-time promotional deals, called incentives, which can be special low loan rates, 0% loans, rebates, or special lease deals. These are almost always genuine good deals for automotive consumers. However, incentives typically only apply to certain vehicle models and time out in a month or two. Incentives are usually only available to customers with good credit. |
| insurance | Car insurance protects owners from the financial impact of accidents, theft, or destruction. Basic insurance is required in most states. |
| interest | Finance charges that apply to a car loan. Interest rates vary by bank or finance company, by type of loan, by customer credit score, and by length of loan. |
| invoice price | The wholesale price that dealers pay for cars purchased from a car manufacturer. Dealer invoice prices may also include advertising costs and distributor costs. Some people think that dealers should sell cars at invoice price and make no profit. |
| lease | Leasing is a form of automobile financing. It offers lower monthly payments because only part of the full value of the vehicle is financed. At lease-end, the vehicle can be returned, or purchased for it's residual value. |
| money factor | Money factor is a car leasing term that relates to interest rate. It's expressed as a very small number like .0023. To convert money factor to interest APR, simply multiply by 2400. |
| MSRP | Manufacturer Suggested Retail Price, sometimes called sticker price for new cars. It is the retail price of a new car, but not necessarily the selling price. Most new cars sell for less than MSRP however new cars that are in high demand can actually sell for more than MSRP. |
| negative equity | In a loan, the difference between current loan balance and vehicle value, when loan balance is higher. When this occurs, the loan is considered to be "upside down." |
| rebate | Rebates are often offered by car makers to customers as a way to help promote sales. A rebate is like a down payment that comes from the car maker's pocket, not the customers. Dealers can receive rebates as well, that can be passed along to customers, or not. |
| residual | In a car lease, residual is the estimated value of the leased vehicle at the end of the lease. Residual values vary by lease company, vehicle make and model, and length of lease. |
| title | To own a car means having a title document that legally ties the owner to the car. Selling a car means having the title to transfer to the buyer. Loan companies often hold a car's title while the loan is being paid. |
| upside-down loan | Being upside down on a car loan or lease means that the current market or trade value of the vehicle is less than the current loan or lease balance. The difference between loan balance and vehicle value is called "negative equity." |
| VIN | Vehicle Identification Number. All motor vehicles have a VIN that specifically and uniquely identifies that vehicle. The VIN can be found at various locations on a vehicle, including on the top left dash, just under the windshield. |
| Glossary V2.0 | |