Car Buying Definitions
APR - Annual Percentage Rate, or
interest rate, that you receive in finance.
Backend - More money that the dealer
makes from extras that they sell you in the
finance department. These
include the financing, insurance, warranties,
VIN etching on the windows, and anything
else they try
to add to your deal while you are in
financing.
Backdoor money - Rebates that the dealer gets from
the factory for selling their cars.
Dealer Sticker Price - A supplemental
sticker that is normally placed on the window of the
car next to the Monroney sticker. It contains the sticker price plus the
suggested retail price of dealer-installed
options which can include Additional Dealer Markup (ADM) or Additional
Dealer Profit (ADP), dealer preparation, security
systems, fabric protection, window etching and
undercoating.
Factory invoice - The invoice from the manufacturer to the
dealer that is supposed to be the
price they pay to purchase
the car. BUT, it is NOT their actual cost because
of the holdbacks, advertising fees, gasoline
charges, dealer discounts, rebates, and
other dealer incentives that the dealership
gets from the factory.
Front-loaded loans - Loans that
payoff the interest more quickly, so that the lender
gets paid first
GAP Insurance - Insurance designed to pay off the difference
between what is actually paid by the insurance company and what is owed
on a vehicle in case the car is totaled.
Holdback - The dealer can get
money back from the
manufacturer if he sells a car within a
specified time. This is normally
within the first three months that the
dealer has the car.
Monroney Sticker - The window sticker is required by law to be
displayed on all new cars for sale on a car lot.
MSRP - The Manufacturer's Suggested
Retail Price. The Base MSRP
is the suggested retail price without any
options. The total sticker price on the
bottom of the window sticker should be the base MSRP plus
all the options. The
dealer may sometimes add options such as security systems
and
VIN etching and may have them tacked on to
the original window sticker. There
should be a second window sticker to show
you these options.
Prepayment Penalty - A fee that some loans charge if you pay
off the loan before the end of the term.
Watch for this! Ask the finance
department if there is any penalty for
paying your loan off early.
Simple Interest Loans - The "flat rate interest"
loan is a simple interest loan that is calculated only on the
initial amount of the loan by multiplying
the principal balance by the rate of
interest by the term of the loan. This
total is then divided by the number of
months of the loan for the amount of
interest paid each month.
Term - The length of your loan in months.
Trade-in allowance - The amount of money
that is taken off the
purchase price of your new car for the
trade-in of your old car.
Upside-down - You owe more on your
trade-in than it is
worth.
Window Sticker (or Monroney Sticker) - The window sticker is
required by law to be displayed on all new cars for sale on a car lot.
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