Car terms you need to know when buying a new or used car

Being familiar with the lingo could help get you a better deal

Car buying has its own language. Car shoppers looking for the best deal on the best car at the best price don't necessarily have to speak it fluently, but they should learn the lingo. That way when the salesperson at your local dealer asks if your trade-in can cover the down payment on a closed-end lease, you don't look like a deer in the headlights.

Acquisition Fee

This only comes into play if you're leasing a car. Lenders charge dealers this fee to finance your lease. It is typically passed on to the consumer and is rarely negotiable. Depending on the cost of the vehicle, the acquisition fee usually lands between $300 and $1,000.

Annual Percentage Rate

Also referred to as APR or finance rate. It is simply the interest on a loan, a percentage of the amount borrowed calculated over 12 months.

Blue Book Value

Often used to determine the value of a trade-in vehicle, this refers to Kelley Blue Book (, a highly respected used-car pricing guide published since 1926 that includes commonly accepted pricing information for virtually every make and model.

Closed-End Lease

The most common type of lease. At the end of the agreed duration or term, usually 36 months, the lessee has the option of either buying the vehicle (at a value agreed upon at the start of the lease; see "Residual Value") or returning the vehicle without further liability or cost.

Dealer Incentives

Special deals and discounts offered to dealers by the vehicle manufacturer that are then passed on to car buyers. These incentives are more common during seasonal sales or are offered on slower-selling models. They encourage the dealer to make room for new inventory.

Dealer Addendum Sticker

Many dealers add modifications such as aftermarket wheels, undercoating and other features that can raise the asking price above the Manufacturer's Suggested Retail Price (MSRP). These will appear on a secondary window sticker known as an addendum sticker.

Destination Fee

An unavoidable cost, often not factored in advertised MSRP. It's the amount charged to transport the vehicle from its assembly plant to the dealership. It usually ranges between $825 and $1,250. Read more about the dealer destination fee here.

Disposition Fee

Rarely negotiable, it's a common fee charged by finance companies at the conclusion or termination of a lease to cover the prep of the vehicle for the next sale. Also referred to as a termination fee.

Document Fee

Often referred to as a doc fee, it is charged by the dealer to cover paperwork processing. It is negotiable. It varies by state and should be challenged if it's more than $100. Read more about the document fee here.

Down Payment

Cash paid upfront to reduce the size of a loan and reduce monthly payments. Possibly optional depending on your credit rating. Often referred to as a down payment, it's a factor in whether you lease or purchase the vehicle, although $0 down programs are often advertised to qualifying buyers.

Drive Off

The total amount a buyer or lessee must pay to take possession of the vehicle and drive it off the lot. Sometimes referred to as Total Due at Signing. If you are purchasing the vehicle, the total amount will include your down payment, doc fee, sales tax and title. For lessees, it normally includes down payment, first month's payment, doc fee, acquisition fee, sales tax and title.

Early-Termination Fee

This is a penalty, often large, charged for the early termination of a lease. Without gap insurance, this fee might also be applied if the vehicle is stolen or totaled.

Excess Wear Charge

Common fees paid at the conclusion of a lease for excess mileage or wear, which could entail damage to the paint, body or wheels. Modifications such as lowered suspensions, aftermarket wheels or tinted windows might incur these charges as well if they're not removed by the lessee prior to returning the vehicle.

Extended Warranty

Also called a service contract, this is a product sold by the dealer that potentially covers repairs or service beyond the duration of the vehicle's factory warranty. It's often of more value to the dealer than to the buyer/lessee, and is generally highly profitable for the dealer. Do your research before buying one.

Factory Incentives

Different from dealer incentives. These are usually cash-back rebate offers or low loan interest rates from the automaker straight to the consumer. That is, a consumer must request the incentives be applied during negotiations.


The Finance and Insurance office at the dealership. This is where paperwork is signed to complete the negotiated deal, and if you are financing it through the dealer, where that documentation will be completed. But the F&I office is also often where high-pressure sales tactics are used to get buyers to agree to products that are highly profitable for dealers and possibly of dubious advantage to buyers, such as undercoating services, dealer-installed accessories and extended warranties.

Gap Insurance

Optional and additional insurance beyond your collision insurance policy. Because insurance policies only pay the replacement cost of a vehicle, not its actual value, there can be a "gap" between the amount you owe on the vehicle and what is paid out by insurance. Vehicles with very high depreciation make gap insurance especially attractive. But dealer-sold gap insurance might be a poor deal for consumers. Check with your regular insurance company first about gap insurance rates; it's probably a better deal than what the dealer will offer you.

Interest Rate

Also referred to as Annual Percentage Rate, APR or finance rate. It is simply the interest on a loan, a percentage of the amount borrowed calculated over 12 months.

Invoice Price

Sometimes referred to a Dealer Invoice. It is the price paid by the dealer to the manufacturer for the vehicle. Any price above the invoice price is profit for the dealer. But frustratingly, dealers often pay less than what the invoice indicates, so a dealer might still profit if a car is sold at invoice, although very few dealers will even consider going below invoice price. Negotiate a deal at invoice price and then apply factory incentives (if any) for the best possible deal.

Limited Warranty

Every new vehicle is covered by a manufacturer-provided warranty, but it's limited by time and mileage. Also, some aspects of the vehicle, including wear items such as tires and wiper blades, often are not covered.

Monroney Sticker

Required by law and named for Almer Stillwell "Mike" Monroney, a U.S. senator from Oklahoma who sponsored the legislation in 1958. This is the window sticker that displays the MSRP, fuel mileage, country of origin and other information useful to the buyer. Read more about the Monroney sticker here.


This stands for Manufacturer's Suggested Retail Price. It's the price the automaker recommends that the dealer charge for the vehicle. However, it is up to the dealer to charge more or less. MSRP is usually considerably more than the dealer pays for the vehicle to the manufacturer. See "Invoice Price" for more information.


Commonly offered by automakers, it is an incentive in the form of a partial refund, often between $500 and $3,000.

Residual Value

Simply the remaining value of any depreciating product after the passage of time. Used to predict the value of a car or truck at the conclusion of a lease and, therefore, the overall cost of a lease. Residual value is not negotiable and is set by the bank or leasing company.

Service Contract

A high-profit product sold by the dealer that potentially covers repairs or service beyond the duration of the vehicle's factory warranty. Offered in the F&I office, it is often referred to as an extended warranty. Like an extended warranty, it is generally a poor value for a buyer.

Subprime Loan

Loans granted to high-risk individuals with poor credit histories and low credit scores, often with much higher interest rates and requiring larger down payments.


The agreed duration of a lease or a loan, often between 24 months and 72 months.


Commonly referred to as the pink slip (even if it's actually a different color), the title is the vehicle's proof of ownership issued by the state's Department of Motor Vehicles. A loaned vehicle's title will be held by the lender (known as a lien) until the loan is paid off. Likewise, a leased vehicle's title will be held by the lessor until the lease is bought out.


Selling a vehicle to a dealer as part of the negotiation on the purchase of another vehicle. The price of the sale is subtracted from the cost of the purchase, but the trade-in is often valued using wholesale pricing information and so is less than the value of the car if sold to an individual. Then again, a private sale takes time and effort. The price offered by the dealer is negotiable but generally is less than that from a private-party sale.

Trim Level

All vehicles are offered in a variety of trim levels, which affect the level of standard equipment and MSRP. Commonly, the names of trim levels are a combination of letters such as SE or LX. In the case of the Honda Accord EX, for example, Honda is the make, Accord is the model and EX is the trim level. Higher trim levels are more expensive but may have extra standard equipment that make it a slightly better deal than adding that same equipment as an option to a lower-trim vehicle.

Upside Down

A slang term (also called being "under water") that refers to owing more on a vehicle loan than a car or truck is worth. This comes into play if you want to sell a car part way through your loan, or if the car is totaled before the loan term ends. Remember, insurance companies generally only pay the replacement cost of the vehicle, not its actual value. Gap insurance will cover the difference. See "Residual Value" and "Gap Insurance" for more info.

Got all that? If you're ready to put these terms to work for you and buy or lease a new car, head over to Autoblog's Car Finder to help you choose your next car.

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