Common Terms You Should Know While Buying a Used Car

kirk thornton 8scCtYs4Dp8 unsplash 1Car buying can become a daunting task. If you’re a car shopper looking for the best deal, especially if you’re a first timer, this list of terms will help you in your car buying experience. Erase the mystery from car shopping and be informed. Read below to be in the know.

Acquisition Fee

This typically applies to a car new car lease, or in some cases a used car lease. Lenders will charge this amount to dealerships to finance your lease. This fee allows dealers/lenders to pull credit reports, and other necessary information to approve your lease. Think of it as a processing fee.

Annual Percentage Rate (APR)/Interest Rate

Put simply this is the interest rate on a loan. It is also known as a finance rate. Depending on your credit results and approval, this amount can vary.

Black Book Value

This is used to determine the value of a trade-in vehicle. “Black Book” refers to the Canadian Black Book, (canadianblackbook.com). CBB provides the most accurate market value of a vehicle, with information on almost all vehicle makes and models.

Closed-End Lease

When you near the end of your lease you have the option to buy the vehicle at an agreed upon amount prior to leasing the vehicle. At the end of your lease, you can either choose to buy the car or walk away without any liability.

Dealer Incentives

This refers to special deals and discounts offered to the dealerships by vehicle manufacturers, which are then passed onto consumers. These incentives are to help sales and encourage specific makes and models to sell.

Down Payment

A down payment refers to cash paid upfront to help reduce the cost of financing. $0 down payments are also advertised to qualified buyers.

Depreciation

This refers to the decrease in a vehicle’s market value.

Early-Termination Fee

This fee is incurred in the event of terminating a lease or finance agreement before the end date of a contract.

Excess Wear Charge

A fee paid near the end of a lease for excess mileage on a vehicle than the agreed upon amount or wear and tear to the vehicle. Wear and tear can include damage to the vehicles paint and body. Any aftermarket accessories added to the vehicle may also subject the lessee to this charge if not removed.

Extended Warranty

A warranty that extends beyond the manufacturer’s warranty.

Finance and Insurance (F&I)

The finance and insurance office at a dealership. All paperwork and documentation get completed and signed here. During this process you can add extras to your deal like extended warranties and undercoating.

Finance Cost

The cost of borrowing money from a lender.

Gap Insurance

Is and additional insurance on top of your collision insurance policy. An insurance policy only covers the replacement cost of a vehicle in the event of a collision and not it’s actual value. This can create a “gap” between the remainder owing on your vehicle and what is paid out by insurance.

Invoice Price

The price that a dealer pays to the manufacturer for a vehicle.

Limited Warranty

A limited warranty applies to all new vehicles covered by the manufacturer. It is limited by time and mileage and often will not cover wear on tires or wiper blades.

MSRP

Manufacturer’s Suggested Retail Price. The suggested price an automaker recommends to a dealer to charge consumers for a vehicle.

Rebate

An incentive offered to consumers from the manufacturer to help sell older models or slow-selling vehicles. Can come in forms of rebates, cash back or lower interest rates than normal.

Residual Value

The remaining value of a vehicle after depreciation. This is often used to determine the value of a car at the end of a lease agreement.

Service Contract

A services covered package offered by dealers that extends beyond a factory warranty. Often includes free services such as oil changes or regular vehicle maintenance.

Subprime Loan

A loan given to high-risk consumers with low credit, usually at a higher interest rate.

Term

The agreed upon duration of a lease or finance agreement.

Trade-In

When buying a new vehicle, a trade-in is selling your old vehicle to the dealership to negotiate a better deal.

Trim Level

All automakers have different models or versions of the same vehicle, trim level is to help differentiate each version.

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