Auto finance has it’s own terminology

If you ever set out to purchase a car or truck, you will undoubtedly encounter a number of terms that sound strange. Like any business, the auto sales industry has its own lingo. We’ll cover some of the most commonly used terms so that you know what to expect when you got to shop for a new vehicle.

More below.

Buying a car means learning some new terminology

Like any industry, the auto industry has its own set of terms used to describe everyday things that one must do, handle, or sign in order to complete a sale. If you work in the industry, you’ll use them every day without giving them a thought. If you don’t, then the salesman might as well be speaking to you in Martian. In order to help you avoid being confused when you shop for a car, we’ll cover some of the most commonly used terms that you might encounter when entering an auto dealership.

• Base price - The price of the vehicle before any additional options are added. This price includes the manufacturer’s warranty and any standard equipment.
• Blue book - An abbreviation for the Kelley Blue Book, a longtime standard industry pricing guide for used cars. While the term has usually been used to refer specifically to the Kelley guide, it may be informally be used to refer to any one of a number of other guides, as well. Since those guides can vary dramatically, one must accept the use of the term with a grain of salt. If in doubt, inquire further.
• Dealer holdback - Every wonder how a dealer can sell a car at a price that is “below invoice?” The invoice is, theoretically, the price that the dealer paid for the car from the manufacturer. But manufacturers usually provide an additional discount to dealers in the amount of 2-3% of the vehicle’s price, thus lowering the dealer’s actual cost. This discount is known as the “dealer holdback.”

• Dealer incentives - In times of slow sales, manufacturers often provide financial help to their dealers in order to stimulate sales. These may come in the form of rebates or reduced-interest financing. The dealers often pass these savings on to the customers.
• Dealer preparation charge - A scam, of sorts. It’s something the dealers add to the sticker price in an attempt to get the customer to pay for the cost of “preparing” the vehicle for sale. If you see it as an itemized price on the sticker, ask to have it waived; the price of preparing the car is included in the base price.
• Destination charge - The cost of moving the car to the dealer from the factory or port where the vehicle is brought into the country. This must, by law, be passed on to the customer at cost.
• Extended warranty - An additional amount of time for which the manufacturer will pay for certain vehicle repairs above and beyond those covered in the original manufacturer’s warranty. This is sold by the dealer as an add-on item and is quite profitable. With manufacturers offering longer warranties than ever these days, an extended warranty is not generally a good buy.

We will cover some additional terms in part two of this auto finance glossary.

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