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Talking the Talk – Understanding Dealer Terms

April 26, 2010
Buying a new car can be a daunting task and it can become frustrating when you don’t understand the terms dealers will commonly use. This article is to assist first-time buyers decipher common language used when buying a car; however, anyone, first-time or fifth-time buying a car, can benefit from this article for a better understanding of common terms and phrases. Below is a list of glossary of terms, common questions and phrases regarding purchasing a vehicle.


Pricing
 


What is MSRP?
Manufactured Suggested Retail Price (MSRP) is sometimes called the “Sticker Price” and means just that – suggested selling price for the retailer. MSRP is determined by the market value of the vehicle and does not include taxes, registration, transportations and other miscellaneous fees (all which could add 10-15% to the final cost).


What is invoice price?
The invoice price of a car is the “price” the dealership paid for the vehicle. Similar to MSRP, the invoice price does not include taxes, registration, transportation or other miscellaneous fees.


What’s the difference between MSRP and invoice prices?
MSRP is the price after the invoice price has been marked up to allow the dealership to make a profit on the vehicle.


How can a dealer go “below” invoice?
Most dealers can offer pricing that is below invoice because they themselves receive manufacturer’s rebates, incentives and volume discounts to offset their discounts they pass on to the consumer.


What is a consumer rebate?
Rebates are discounts that are passed to the consumer by the manufacturer. Rebates are applied after taxes and license fees.


What is a manufacturer rebate?
A rebate that is similar to the consumer rebate, however, these rebates are passed to the dealership.


What does it mean when my vehicle depreciates?
Depreciation is the vehicle’s decline in value over a period of time. Once a vehicle is sold, driven and used, the value of the vehicle automatically declines.


What is a transportation fee?
A transportation fee is charged by all dealers and it’s the cost of transporting the vehicle from the manufacturer’s location to the dealership.


What is tax and license?
Like all purchases, all products are subject to state and federal taxes, vehicles are no exception. License fees are the cost of the dealership licensing the vehicle with the new owner’s information.


Lending


 
What is APR?
Annual Percentage Rate (APR) is the rate your paying for your loan and is charged by your financial institution.


What is a loan term?
A loan term is the amount of time, usually determined in months, you’re paying for your auto loan. The most common terms are 48 to 60 months. Most institutions will increase the rate if the term is 72 to 84 months and it’s rare for an institution to lend longer than 84 months.


What is a lease?
A lease is like renting the vehicle and the payments are usually much lower than purchasing the vehicle with an auto loan. However, there are more fees involved and you don’t own the vehicle at the end of the term. After a lease has ended, the consumer will have to pay a residual – the amount you owe at the end of the lease. Car lease residuals are a statement of the expected depreciation of a vehicle’s value over the life of a lease. The value can be affected by a number of factors, including expected average annual mileage, number of months in the lease, make/model vehicle, resale history, predicted future supply and demand, rise/fall in gas prices, and anticipated future economic conditions. In short, lease residuals amount to nothing more than an educated guess. (http://www.leaseguide.com/Articles/residualvalues.htm)
What is GAP protection?


GAP insurance or GAP protection is insurance coverage to pay for the vehicle’s loan in the event the vehicle is stolen or totaled in an accident. Because a vehicle depreciates automatically after you’ve purchased it, the value of the vehicle is lower than the amount of the loan. All insurance companies will only cover the value of the vehicle, leaving the consumer responsible for the difference on the loan. GAP insurance will cover that “gap” between the value of the vehicle and the loan amount. Most financial institutions and dealerships offer this insurance; most credit unions offer GAP policies at affordable prices compared to dealerships.
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