Buying a car can be a stressful and time-consuming process. Having to deal with unpleasant salespeople who sometimes seem like they’re speaking a foreign language is no fun. What makes it even more stressful? Knowing that you’ll have to haggle face-to-face with a dealer to get a good deal. Don’t let this discourage you. We have created a glossary of words to help you navigate the car buying process.
Annual Percentage Rate
Annual Percentage Rate or APR is the cost you pay each year to borrow money, including fees, shown as a percentage.
Balloon Payment
This form of financing allows you to pay off a portion of the total cost of a car through monthly payments, and at the end of the loan you have to pay the remaining balance in one lump sum.
Down Payment
Cash paid upfront to reduce the size of the loan. The more you put down, the less your monthly payments will be. Try to aim for no less than 20% down so that you aren’t paying too much in interest.
Deposit
The money a dealer takes until your paperwork for the vehicle is complete. It lets the dealer know if you are serious about buying the vehicle because you lose the deposit if you walk away.
Direct Financing
Direct financing is when you apply for a loan directly from a credit union or a bank. It is usually the best way to go about financing, especially if you have a good relationship with your financial institution.
Drive Off
What you must pay to take possession of the vehicle and drive it off the lot.
Equity
This is the difference between the resale value or your car and the amount you still owe on it. It is a way of putting a number to the amount of vehicle that belongs to you.
Extended Warranty
This is a product sold by the dealer that covers service and repairs beyond the vehicle’s factory warranty. It is often a better deal for the dealer, as they profit a lot from it, so do your research before buying one.
F&I
F&I is the finance and insurance office at the dealership. This is where you complete your negotiated deal and sign the paperwork. But beware, the F&I office is trained to use high-pressure sales tactics to get customers to buy products that are highly profitable for the dealer but somewhat questionable for the consumer.
Fair Market Value
The price your vehicle would sell for on the market in its current condition. Websites like Kelley Blue Book, Edmunds, and TrueCar can help you determine your vehicle's fair market value, new or used.
Gap Insurance
If your vehicle is totaled out by your insurance company Alliance will pay the difference from what the insurance pays and what is still owed on the loan. Also, when a GAP claim is paid, we pay the member $1,000 to their share account.
Interest Rate
This is the cost you pay each year to borrow money, shown as a percentage.
Invoice Price
The price a dealer pays to the manufacturer for the vehicle. If you can, try to negotiate a deal at the invoice price and apply other incentives for the best deal.
Lease
A lease lets you drive a new vehicle without paying a large amount of money or taking out a loan. You simply make a down payment which is typically lower than the usual 20%, followed by monthly payments for the term of the lease. When the term is up, you return the vehicle.
Limited Warranty
When you buy a new car, it is covered by a warranty provided by the manufacturer, but it is limited by time and mileage. Also, it doesn’t cover all parts of a car.
Market Value
This refers to the price your vehicle could sell for on the open market. This is useful in determining what to sell your vehicle for.
MCP
MCP or Member Credit Protection is a hybrid product that includes both credit life insurance and Guaranteed Asset Protection (GAP). If you have MCP at ALLIANCE, you are covered if you are to pass away, so your loved ones don’t have to worry about that debt.
Monroney Sticker
A label required in the U.S. to be displayed on new vehicles that lists certain official information like the vehicle's price, engine and transmission specifications, and other performance information.
MSRP
This stands for manufacturer’s suggested retail price. It is the price a vehicle’s manufacturer recommends it be sold for. It is also referred to as the list price.
Negative Equity
When you owe more on a vehicle than its market value.
Pre-Qualify
When you get a lender to confirm that you are eligible for a loan. Getting pre-qualified lets you know how much you are able to borrow, and at what interest rate, without having a hard credit inquiry.
Principal
The principal is the total money you borrow to pay for the vehicle. Interest is what it costs to borrow the principal.
Rebate
When you purchase a new vehicle, the vehicle rebate is a discount provided by the manufacturer to buyers who qualify.
Service Contract
Also called an extended warranty, this is a product sold by the dealer that covers certain repairs once the manufacturer’s warranty has expired.
Subprime Loan
This is a type of loan that is offered to people with low credit scores or limited credit histories. A subprime loan usually has higher interest rates, down payments, and penalties if you are unable to pay.
Title
A title is a document that establishes the legal owner of a vehicle. It is issued by a state department of motor vehicles. A loaned vehicle’s title will be held by the lender until the loan is paid off.
Trade-In Value
The price a dealer would offer a consumer to apply towards the purchase of another vehicle in the dealer’s inventory.
Upside Down
Being upside down on a car means you owe more on the loan of the car than it is currently worth.
Vehicle Identification Number or VIN
This is the identifying code for a vehicle and no two vehicles have the same VIN. It is composed of 17 characters and displays the car's features and specifications. It can be used to track recalls, warranty claims, registrations, and insurance coverage.
Wholesale Value
The amount of money a dealer pays a manufacturer for a vehicle. This can also represent the money a dealer paid to purchase a vehicle from another dealer at an auction.
Are you ready to put these terms to work? Click HERE to apply for an auto loan at ALLIANCE today!
