Buying a new car is no simple task. Stepping foot into a dealership can sometimes feel like you’re entering a new world. The lingo, the slang, the terminology. It’s all intimidating. Not to mention the fact that engaging with many car dealers is like pulling teeth to begin with. Throw in foreign words, phrases, and jargon, and it can be even more challenging to feel comfortable and confident when buying a car. This is why we created The Car Buyer’s Glossary of Terms.
We took the time to compile a glossary of terms, acronyms, and jargon you should know before going into a dealership. Click on any of the links below to jump to a specific section in The Car Buyer’s Glossary of Terms. If you think we missed a word, phrase, or acronym that belongs on this list, please let us know in the comments below.
Without further ado, here is The Car Buyer’s Glossary of Terms.
An acquisition fee, also commonly referred to as a bank fee, only comes into play when you lease a car. This fee is charged by the leasing company to initiate the customers lease and is required on all leases. The lease acquisition fee usually includes GAP insurance to protect both the lessor and the lessee in case of vehicle damage resulting in a total loss. The acquisition fee can range from a few hundred dollars, to more than a thousand dollars. This depends on the leasing company and the car being leased.
Additional Dealer Markup
Additional dealer markup, or market adjusted pricing, is a tool that dealerships use to increase the asking price for a particular vehicle. This is typically listed on the addendum sticker that is placed next to the Monroney sticker to reflect any dealer installed items and adjustments. This usually occurs on vehicles that are in high demand and short supply.
Annual Percentage Rate
Annual percentage rate is as common a term in a car dealership as it is at your local bank. Commonly referred to as APR, the annual percentage rate represents the annualized interest rate on a loan (or credit) of any sort. Instead of getting an auto loan at 0.0000110 per day interest, you get a loan at 4% APR. The annualized interest rate is simply easier to understand and reference.
Car auctions represent the underpinnings of the retail car market. Registered car dealers can sell and buy cars at used car auctions across the world. Manheim is the largest used car auctioneer. Dealers have access to manufacturer sponsored auctions where dealers franchised to sell those brands can buy retired company cars and captive lender lease returns.
Blue Book Value
Blue book value refers to the often referenced price sourced by Kelley Blue Book (kbb.com). Kelley Blue Book is well regarded in the automotive industry, having their used-car pricing guide in publication since 1926.
Most car leases are of the “closed-end” variety. A closed end lease means that the customer is not obligated to purchase the vehicle, or guarantee the lease end residual value of the vehicle at the end of the term. This means the customer does not have to buy out the car at the end of the lease. With an open end lease the customer is obligated to guarantee the lease end residual value of the vehicle.
Dealer incentives and factory incentives are one and the same. They are the incentives that the manufacturer pays to the dealership, and dealership personnel in order to encourage the sale of certain vehicles. These incentives can also take the form of monthly and quarterly sales goals as determined by the manufacturer.
Customer incentives, such as rebates, special financing options, and discounted lease rates are what the manufacturer will advertise and underwrite. These are put in place to encourage the sale of certain cars.
Dealer Addendum Sticker
A car’s Monroney sticker provides an overview of relevant information about a new vehicle. Not included on this window sticker are any dealer added accessories. For example, dealers may add aftermarket wheels, undercoating and other features that can raise the asking price above the MSRP. These modifications will appear on a secondary window sticker known as the dealer addendum sticker. This ensures that you, the buyer, have full clarity into what the car includes, and what came from the manufacturer as well as what the dealer added.
The destination charge is part and parcel of a car’s MSRP, and is listed on the window sticker as a separate line item that makes up the total manufacturer’s suggested retail price. The destination charge is not something that dealers pass on to the customer. It is a charge that the manufacturer imposes.
The disposition fee is non-negotiable, and only charged to a customer when they return their lease car and do not lease or finance another car through that lender or leasing company. This fee is charged in addition to any excess wear and tear items that might be discovered at lease end. The disposition fee helps to mitigate the lenders cost to recondition, transport and register the car for sale at the auction.
This is a fee that the dealerships charge to help offset the costs of non-revenue producing dealership personnel such as accounting staff, title clerks etc. Most states cap the dealers as to how much they can charge for the documentation fee, and this amount varies from state to state.
As with any loan, the down payment represents the cash paid upfront to reduce the total size of a loan.
Another charge only applicable to leases, an early-termination fee is exactly what it sounds like, it is an additional charge for cancelling your lease before the term is over.
Excess Wear Charge
Yet another lease specific charge, excess wear charges are incurred on leased vehicles that (upon their return) contain dings, dents, scratches, tears, etc. At the lease-end inspection (click here to jump to lease-end inspection), you will be notified if there are any excess wear charges. This also includes if you exceed your allotted mileage for the term.
An additional product sold by the dealership, that is sometimes referred to as a service contract. It covers service and repair costs that may be incurred beyond the vehicle’s factory warranty.
Finance & Insurance
One of three revenue generating sections of a car dealership, the finance and insurance department is where you’ll sign your paperwork for your new car. The F&I manager will walk you through all of the documentation of your purchase, as well as give you the opportunity to purchase additional products (extended warranties, tire and wheel protection, etc.)
The cost incurred by a dealer to purchase inventory in their dealership. More on dealership floorplanning can be found here, on the NADA website.
Exactly as it sounds, gap insurance provides supplemental coverage for the difference between the cash value of your car and the amount you owe your lender or leasing company at the time of a claim. For vehicles with steep depreciation, gap insurance can be an attractive option.
The proportion of a loan that you are charged for the privilege of being lent money.
The price a dealership pays the manufacturer for a vehicle they have purchased.
This is dealer slang for a customer who accepts the first offer during negotiations, or chooses to not negotiate at all.
Manufacturers offer limited (in terms of scope and term) warranties on their new cars. Terms can be as few as a year or two, and scope frequently does not include general wear and tear items like tires and wiper blades.
The lease end inspection is mandated by the leasing company. The inspection includes recording the miles on the odometer, inspecting the vehicle for excess wear and tear, including such items as tire wear, scratches, dents, dings and windshield damage, and confirming that no aftermarket accessories were added to the vehicle. Oftentimes the lease end inspection is done by dealership personnel on the lender’s behalf, or if a customer prefers, a third party inspection can be requested.
The money factor is utilized by the leasing company to establish the interest portion of a lease payment.
Also commonly referred to as a window sticker, the Monroney sticker is a federally mandated label on all new cars in the United States. Named for Almer Stillwell “Mike” Monroney, a U.S. senator from Oklahoma who sponsored the legislation in 1958, the Monroney sticker contains information on the MSRP, fuel mileage, country of origin and more. Ray wrote this guide to understand how to read a Monroney sticker.
The Manufacturer’s Suggested Retail Price is the factory’s recommended selling price for a vehicle. Nine times out of ten, a dealership does not sell a car for it’s MSRP. Most are negotiated below that amount, since the dealer can still make money.
The total cost to purchase a vehicle. Also sometimes referred to as the “on-the-road” price. This includes all taxes, fees, and the selling price of the vehicle.
A rebate is cash that is advanced to the customer by the manufacturer as an inducement for the customer to buy the car. In the vast majority of cases the customer opts to use the rebate amount as additional cash down on the purchase. The other option for the customer is to request that the manufacturer actually mail them a check for the rebate amount after the sale. This probably happens less than one percent of the time.
The residual value represents the expected value of a vehicle at the end of a lease term. Cars depreciate, and lease rates are determined based off of the expected residual value of a vehicle at the end of a term. Residual values differ for every car.
Generally synonymous with extended warranty (click here to go to extended warranty), a service contract is a dealer sold product that covers repairs or service beyond the manufacturer’s warranty.
Loans granted to individuals who have less than stellar credit scores. Typical subprime credit scores fall below 600. More on the credit scores car dealers use can be found here.
The duration of a loan or lease as agreed to in your contract. Typically anywhere from 24 to 84 months.
Issued by the Department of Motor Vehicle in each state, a title represents a vehicles proof of ownership. Note that if you finance your car the bank will hold the title (known as a lien) until the loan is paid off. Similarly, if you lease a vehicle, the leasing company will hold the title.
When you sell your vehicle to a dealership during the process of purchasing another car. The “traded-in” car’s value is put towards the sale price of the next vehicle.
Cars, trucks, and SUVs come with a dizzying array of options. Trim levels are manufacturer created tiers of standard equipment and options. For example a BMW 3 series comes in four trim levels; 330i, 330i xDrive, M340i, and M340i xDrive. The model is a 3 series, the manufacturer is BMW, and the trim level is the 330i, 330i xDrive, M340i, and M340i xDrive.
Also referred to as “being under water,” or “negative equity,” this term refers to when you owe the bank more money than the vehicle’s current value. A high percentage of people find themselves in this position when they go to trade their existing car in towards a new one, especially if they took out a lengthy loan.
Vehicle Identification Number Or VIN
A 17 digit identification number that is unique to each vehicle. A vehicle’s identification number will include codes for year, make, body style and engine. VINs are typically found under the windshield or along the door jambs of a vehicle.
What would be the best approach to negotiate with a car dealer with whom I have leased my last 3 cars. this time I am open to another lease or purchase (leaning very heavy toward a purchase). I am also prepared to walk away if they don,t offer a fair deal given our history.
Kerry, thanks for this comment! I’d definitely recommend you refer to Deal School if you haven’t already: https://wordpress.caredge.kinsta.cloud/deal-school/
I enjoyed watching your video and do have a question regarding purchasing a new car. This will be the fourth car I’ve purchased over the years from the same dealership. But even though I’ve done this before it still gives me a headache. I want to know if the OTD price I’ve been given is a fair one. Please send me an email and I will give you the breakdown. Thank you
Diane, please consider becoming a CarEdge member so that we can meet for a 15 minute 1:1 consult call! Thank you! More on that here: https://www.youtube.com/watch?v=c4Zz4LheuiY
I am shopping around in Colorado for a used Subaru Outback and nearly every dealer has included a D&H or dealer handling fee: I’ve seen $599, $699 x2, and expect to see more on pending price breakdowns. What is this fee? Wondering if it’s their version of a doc fee (which I am not seeing)?
Zach, you and your dad are doing an amazing job. Your content is not only highly educational content but also, very entertaining! Your love for your dad radiates in each video and it is wonderful to see. I have gone through most of your videos and am currently working to negotiate a deal on a Trailhawk by using your email technique.
One question i had, which i have not seen covered in the videos is, when negotiating over email, do you recommend negotiating items such as the doc fee with the sales person or asking to be put in touch with the F&I person? There seem to be 2 camps out there when it comes to this, would love your thoughts.
I hope to share my car buying journey with you all in the near future as i have noticed an interesting tactic dealers are trying to constantly use on me when dealing over email. Thank you both for the awesome info, it is MUCH appreciated.
I will be turning in my imprezza as my lease ends in June. .I will be leasing another car and will not be charged the disposition fee if I lease with dealerships they have 4 brands. Will I loose bargaining power when they find out about my lease turn in.?? I plan on trying to get out the door numbers on line to try to get the best deal
Hello, my name is Maria M and I made the mistake of stating that I would be putting $14,000 down. I also made a appointment, they also sent me a link to fill out paperwork. I am going to cancel my appointment and when we get to dealership will have my son give his name. We can start fresh if they do not know who I am. This first dealership I went to was Toyota where I live and I asked if they could print me and estimate sheet with the invoice price and all the fees and registration costs. The invoice price was 21, 100 for a 2021 Toyota Corolla with 0 APR. I asked if they are willing to make a deal with us for 18,000 out the door with taxes and fees and 14,000 down cash. Explained that my son 19 years old would be a continued customer and would also be giving them more money in the future with buying extended warranty and possibly buying another car here. The manager was called and he explained the fees and said he would not make a profit and would not be able to do that. I asked if he wanted us as customers or we could take our money elsewhere. He simply said I can’t do 18,000 out the door, we said thank you I know anther dealership that will work with us . I watched more of your videos which I had not known about prior to going into the dealership. Can you actually do a skit on your youtube channel between you and your dad. A skit showing how to actually make the deal.
I am buying a Hyundai Santa Cruz limited from Rowe Hyundai in Westbrook Maine and they are selling at MSRP of $40,170. Inland freight &handling at $1245.Tthey have added feature 1. carpeted floor mats 2. first aid kit 3. mud guards 4. cargo net 5. tow hitch. These features add up to a OTD of $42,290.
You were interested in dealerships that were selling at MSRP, so you can add them to your list
I started my YAA membership during the holiday season 2022.
I have used several tools on Caredge.
I have a question about using True Car to get a price on a new car. I’m a member of AAA. One of my benefits of AAA is getting a price quote from True Car. Do you think this might be beneficial?
I did use True Car in 2016 when I purchased my current car 2016 Camry Hybrid.