Car Sales

Balloon Payment/Balloon Loan

A loan that pays off only a portion of a vehicle during its term and demands a large sum—the "balloon"—to be paid at the end of the loan.

Rebate

A partial refund on a new-car purchase offered by the manufacturer or dealership in order to increase sales. Rebates can either be deducted from the purchase price or refunded by mail after the sale has been completed

Fixed (Guarenteed) Residual

A price- decided upon at the initiation of the lease-at which a lessor promises to sell a leased vehicle to the lessee at the close of the lease. Can work in the buyer's favor if the value of the vehicle is greater than the predetermined price, but the opposite is more likely to be true

Equity Lease

A rare kind of lease in which the lessee must buy the vehicle at the emd of the lease

Appearance Package

A set of mandatory items dealers may put on their vehicles after they arrive from the manufacturer. They tend to be external bolt on items (usually removable). Some items might include: -Floor mats (either carpeted or all-weather rubber versions) - Mud guards (also called Splash guards) - Wheel locks - Fender well trim (also called wheel lip moldings) -Door edge guards -Pinstripes (either stickon or painted) They can sometimes be removed, or included free of charge as a negotiating tool. They are a way of padding the dealer's profit margins, as they are usually very overpriced.

Dealer Holdback

A small percentage of a vehicle's cost that a manufacturer pays back to a dealership after the vehicle has been sold. This is what allows dealerships to sell vehicles at invoice price or below and still make profit.

Buyer's Order

A summary of what both parties have agreed to thus far. It is NOT the final sales contract committing you to buy the vehicle. The buyer order should list the agreed-upon price for the vehicle and a breakdown description of the exact make, model, style, color, and options on that vehicle, as well as the vehicle VIN of the vehicle in question, if one has been assigned to the vehicle already.

Dealer Trade

Also known as a dealer exchange (or DX), this refers to the process that dealers practice of trading one vehicle for another in order to get a vehicle for their customer that's on another dealer's lot

Disposition Fee

Also known as a termination fee, this is a fee charged by finance companies at the close of a lease to cover the cost of bringing the car back into its fleet and prepping it for sale again. This is often waived if you buy another car from the same brand at lease end

Cost of Funds

An APR, a money factor, or a rent charge, this is the charge for using the bank's- or another lender's-money to acquire the car. Also known as financing costs.

Financing Cost

An APR, a money factor, or a rent charge, this is the charge for using the banks- or lenders- money to lease the car. Also known as coat of funds

Lease Extension

An agreement between the lessee and the lessor to continue the lease beyond the initial term, generally without altering the monthly payment

Protection Package

Another set of forced items, like an appearance package, although the mix of items may vary (or be the same) and can include: -VIN (vehicle identification number) etching on the engine compartment -Trunk Tray (basically a floor mat for your trunk) -Rust proofing -Paint Sealant -Vehicle undercoating -Fabric protection

Capitalized Cost Reduction

Anything- down payment, a trade in- that reduces the amount financed through a lease

Money Factor

Basically an annual percentage rate for a lease. Expressed as a small decimal figure- say, 0.025 -rather than a percentage rate, but is the same thing as an interest rate: a charge from the lender for using its money. To convert to an equivalent interest rate, just multiply by 24. Money factors will occasionally be expressed as a larger decimal figure, such as 2.5 used to describe 0.0025, which is actually 6%, to disguise them ad a low interest rate.

Down Payment

Cash paid up front by a borrower to reduce the amount financed in a lease or loan. While a large down payment can reduce your monthly payments, it also likely will be forfeited in the event of s totaled or stolen vehicle

Prepayment Penalties

Charges for paying off a loan early. Because early payment minimizes your total cost of interest, paying off your principal early is usually a good idea. People with good credit and who qualify for good loans shouldn't have to accept prepayment penalties

Documentation Fee

Charges intended to cover the cost of processing the paperwork involved in the sale of a car. Many fees charged by dealers are negotiable, and this one should be challenged as extraneous if its more than 100$

Dealer Prep Fees

Charges- usually negotiable- added to the purchase price of a new car to cover the cost of preparing the car for sale after its transport to the dealership

Gap Insurance

Insurance that covers the difference between a vehicle's depreciated value ina loan or a lease and the amount owed on it in case it is stolen or totaled, a difference the owner or lessee would otherwise have to pay to be true

Excess-Wear Charge

Penalties paid at the close of a lease if the car is returned in poor condition. Be aware that these charges can be levied for modifications such as tinted windows, different wheels, or anything else that could be construed as lowering the value of the car.

Excess Milegage Charge

Penalties paid at the close of a lease if the lessee drives the vehicle a greater distance than the limit stipulated in the contract. Its cheaper to buy the excess miles at the beginning of the lease, so its best to be realistic about your mileage needs

Early Termination Fees

Penalties paid for withdrawing from a lease or loan ahead of the scheduled end date. Typically these penalties are very large akin to simply paying off all remaining payments without the use of the car. These may apply if a vehicle is stolen or totaled and you don't have gap insurance

Model

Refers to a specific vehicle name within a make ex. Ford MUSTANG, Honda ACCORD, Toyota CAMRY

Make

Refers to the brand (or nameplate) of vehicle ex. Ford, Honda, Chrysler, Toyota, etc.

Style (Trim)

Refers to the trim or equipment level of a particular model of vehicle ex. EX, Limited, Supercab

Price

Represents the price you pay for the vehicle when all is said and done, but there is no hard and fast rule

Distributor

Some manufacturers have a middle man between them and the dealer, known as the distributor, which may add additional fees or physical add-ons that you will find on a local invoice in certain regions of the country

Dealer Incentives

Special offers from can manufacturers to their dealers- which are usually passed down on to the customers- to encourage sales in a slow market or whenexcess inventory builds up

Dealer Invoice

The amount a manufacturer charges its dealer for a car

Dealer Invoice

The amount a manufacturer charges its dealers for a car

Principal

The amount borrowed

Principle

The amount borrowed

Destination Charge

The amount charged for transporting new cars from the factory to the dealership. The destination charge on the dealer invoice is not negotiable, but you should never pay any added destination charge tacked on by a dealer, unless you've requested and agreed to such a charge for a vehicle that must be transported a long distance from another dealer

Lease Payment

The amount you must pay every month during the term of a lease. This is the sum of the rent charge and the depreciation charge plus applicable taxes. Your month depreciation charge is calculated by taking the difference between the Net Capitalozed Cost and Residual Value and dividing by the terms in months. Your monthly rent charge is calculated by taking the sum of the Net Capitolized Cost and the Residual Value and multiplying it by the money factor.

Manufacturer

The builder of a vehicle and many consist of one or several makes of vehicle ex. Ford (Ford, Lincoln), General Motors (Chevrolet, Buick, GMC, Cadillac), Toyota (Toyota, Lexus), Volkswagen (Volkswagen, Porsche, Audi, Lamborghini, Bugatti, Bently)

Spread

The difference between a dealer's Buy Rate & Sell Rate for financing a loan or lease, typically around one percent. Dealers generally don't disclose the spread

Bump

The difference between the rate a dealer pays for financing on a loan or a lease (called the Buy Rate) and the rate at which they sell the financing to you (the Sell Rate)—typically around one percent. Dealers generally don't disclose this bump, so do your homework on the actual rate being offered by the manufacturer or finance company and negotiate to reduce or eliminate the bump. Also known as a Spread.

Residual Value

The estimated value of a car when it is returned from a lease. In most consumer leases, which ar closed-end, this is the value used in the monthly payment calculation and the price at which you can buy the car at the end of the lease

Lessor

The finance company or party (sometimes a "captive", which is a finance company wholly owned by a car company) to which a lease makes payments. The time owner of a leased vehicle.

Floor Planning

The financing cost a dealer incurs on a new vehicle from the time they recieve it from the manufacturer to the time it is sold to the first buyer

Term

The length of a lease or loan

Milage Limit/Allowance

The maximum distance a vehicle may be driven during a lease. Any addition mileage may garner an additional fee usually a per-mile charge. Its also cheaper to buy the excess miles at the beginning of the lease , so its best to be realistic about your likely mileage

Lessee

The person leasing a car

Rent Charge

The portion of your lease payment that goes toward financing instead of principal reduction

Trade-In Value

The price a dealer will pay for your current car when selling you a new one. Dealer trade in is typically thousands of dollars lower than the price possible with a person to person sale, so decide what the convenience of getting rid of your old car at the same time as you get your new car is worth to you.

Buyout Price

The price of buying a car at the end of the lease term. If you think you might buy your vehicle at the end of the lease, carefully compare the costs of buying outright to those of purchasing after a lease. A high residual/high money factor lease may yield an attractive payment, but it makes for a bad deal if you buy the car at the end. A low residual/low money factor lease can yield a similar monthly payment during the lease and allow a better deal for buyers at lease-end

Sticker/asking Price

The price on the Monroney sticker. Do not pay sticker price. With the occupation of brand-new models on those in particular high demand, cars can typically be bought for a price well below that quoted on the sticker

Buy Rate

The rate at which a car dealer acquires financing. The dealer can profit by offering the financing to a customer at a higher (sell rate) and keeping the difference (spread)

Sell Rate

The rate at which a dealer offers financing to a customer. If the dealer has acquired financing at a lower rate (buy rate), it keeps the difference as profit

Upfront Costs

The total of all costs that must be paid at the signing of the contract: down payment plus fees

Open-ended Lease

This is a lease typically only offered to fleets and companies in which the lessee (you) is responsible for the difference between the residjal and the fair market value of the vehicle at the close of the lease

Pre-Qualify

To have a lender confirm you are eligible for a loan without you committing to accepting it

Prequalify

To have a lender confirm you are eligible for a loan without you committing to accepting it

Fair Market Value

Used only in rare open-ended leases, this is the worth of a lease vehicle at the end of the lease period.

VIN

Vehicle Identification Number, a 17-digit number identifying your specific vehicle. Each VIN is unique and is like a social sexurity number for your vehicle. With a VIN, you have the ability to look up a vehicle's recorded history through sites like Carfax, although this should not be necessary when buying a new vehicle.

Qoute

When a dealer gives an amount they'd offer for a vehicle. This may not include all the costs you'd ultimately have to pay (i.e. state fees such as tax, tags, and title, or the destination charge, or other miscellaneous regional fees or mandatory add-ons from the dealer)

"straight swap"

When dealers swap invoices 1 for 1, so neither loses their "holdback" in the process

Processing Fee

A fee a dealer may use at their discretion. It does not reflect any particular cost & depending on what state you're in, may have mandated upper limit

Acquisition Fee

A fee charged by the dealer for initiating a lease; ostensibly covers the costs of processing the lease—credit reports and insurance verification, for example—but is in actuality pure profit. Although many fees associated with a lease are negotiable, this one is generally unavoidable.

Closed-End Lease

A lease that gives the lessee the option of either buying the car at the end of the term at a set price or walking away without liability for any unexpected reductions in the vehicle value. Closed-end leases are what nearly all car companies and banks offer, but it is smart to verify that your lease is closed end.

Walk-Away Lease

A lease that gives the lessee the option of either buying the car at the end of the term at a set price or walking away without liability for any unexpected reductions in the vehicle's value (other than those resulting from damage or modification). Walk-Away leases are what nearly all car companies and banks offer, but its smart to verify that your lease is walk-away. Also known as "closed-end lease"

(Net) Capitol Cost

A leasing term that means the sum total being financed through the lease-vehicle price plus any extras and minus the capitalized cost reduction. Also known as "Adjusted Cap Cost"

Pre-Computed Interest

A loan in which the total interest is calculated in advance and an equivalent percentage is baked into each monthly payment. If you stop your principle early, the remainder of these charges should be refunded

Annual Percentage Rate (APR)

Also called a finance rate, this is the interest rate on a loan; a percentage of the amount borrowed that a lender charges annually for the use of its money.

Finance Rate

Also called an "annual percentage rate"; the interest rate on a loan. A percentage of the amount borrowed that a lender charges annually for the use of its money.

Extended Warranty

Also known as a "service contract", it is an agreement to cover certain specific and repairs beyond the life of the factory warranty. Except for those offered by manufacturers directly, most either cover so little as to be useless or are outright scams

Lease

Essentially a long term rental in which the dealer (or a 3rd party buyer working with the dealer) buys a car and allows the lessee to use it for a specific period of time or agreed mileage while making monthly payments. At the end of the lease period, the lessee can either buy the car or return it to the dealer, depending on the type of lease

Default

Failure to make payments or otherwise abide by the terms of a financing contract

MSRP

Manufacturer's suggested retail price also known as "retail price" or "window sticker". This is what is listed for the basic price and all options on the Monroney Sticker

Upside Down

When you owe more on a loan than your vehicle is worth. This happens because vehicle depreciate rapid during the first years after they leave the showroom, and is a dangerous situation for several reasons. If you want to trade the vehicle in before your loan balance catches up to the car's depreciation, you will buy a new car from. Also, if the car is totaled in an accident, the insurance company will only pay you the worth of the vehicle, leaving an outstanding balance with the lenders- unless you have gap coverage. Which is nearly always worth buying with a new car lease or loan. To minimize the risk of becoming upside down, keep your loan term as short as possible.