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Ted Fenton, our resident expert, has put together a complete list of
terms and phrases that you must have an understanding of
in order to be effective in negotiating a car sale.
Allowable mileage: This is the number of miles that are allowed to you over the term of the
lease. You can set your allowable mileage a year on a lease at 10,000, 12,000,
15,000, 18,000, etc. If you go over your allowable mileage you typically will be charged anywhere
from 15 cents to 20 cents per mile.
Asking Price: This is the price the dealership hopes to sell you the car for if you do
NO negotiations. You always want to negotiate down from their asking price to your price.
Balance: This is the amount of money that is still owed on your trade-in.
Capitalize Cost: Dealers often call this "The Cap Cost." The Cap Cost is the negotiated
price you are buying the car for. This term only applies to leasing.
Closer: This is the sales manager or an experienced sales person at a dealership who comes
in at the end of the negotiation to try and bump the price or "close the deal." The closer has
some power but the sales manager has the ultimate power.
Credit: This word is used in a number of different ways. In the financial world it means
the "ability to borrow money." If a salesman says you have "strong credit," that means that you
should get the best interest rate a bank has to offer.
Credit Report: This is a document that details an individual's payment history on
purchases where credit was used. This also includes all your addresses and social security
number.
Credit Score: This number provides banks with the means to evaluate credit risk on whether
they should loan you money or not. This number is based on an analysis of data reflected in your
credit report.
Demo: This has two meanings: Either a test drive or a car that has been used as personal
transportation by a sales manager or salesperson at a dealership.
Depreciation: This is the amount by which a vehicle loses value over time. In leasing,
depreciation is the difference between the new car cost and the value of the car at the end of the
lease.
DMV: This is an abbreviation of Department of Motor Vehicles.
Drive-off fees: This is the amount of money you must pay to begin a lease.
The minimum drive-off fees consist of:
- your first payment
- registration
- a dealer documentation fee
- the bank acquisition fee
Any additional money added to these minimums only lowers the cap cost, in turn lowering your
lease payment.
Early Termination: This applies to leasing only. Some leasing companies want you to pay a
huge fee if you decide to end your lease early. If you end your lease early by trading in the
vehicle, you will lose a substantial amount of money.
Equity: This is the difference between what your car is worth and what you still owe on it.
You can either have positive equity or negative equity. You never want to trade a car in that has
negative equity, meaning you owe more money on the car than what it is actually worth.
Excessive wear and tear: This term only applies to leasing. At the end of the lease if
you are turning the car back in, it has to go through an inspection before the bank will take it
back. If your car has excessive wear and tear, meaning bald tires, needs brakes, has lots of
scratches on it, etc., the bank is going to send you a bill to repair the excessive wear and
tear.
Finance: If a car is financed it means that you are borrowing money and paying it back as
you drive your new car. Until you make the last payment, your financing will not be over.
F&I Office: This stands for Finance and Insurance. This is the office where you will
finalize and sign all your loan documents, registration documents, etc.
Four-square worksheet: This is a form that is used in many dealerships. It was devised to
confuse the customer by shifting his attention to negotiate payments rather than price. The first
square is the trade-in square. The second square is the down payment
square. The third square is the price square and the forth one is the
payment square. Do not sit down and follow the salesman through the four
squares. Work on the price of the car only.
Gap Insurance: This is very important insurance to have if you finance a car. There is no
need to buy Gap Insurance if you are leasing the car because most leases have Gap Insurance
included in the contract. If you total a new car and you still owe $30,000 on it but your
insurance company says the car is only worth $25,000, you would have to pay the additional
$5,000. If you have Gap Insurance this $5,000 would be paid.
Hold Back: This is a percentage that the dealer is paid by the manufacturer after the car
is sold. It is usually 2 or 3 percent of the invoice of the sticker price. You can negotiate
the dealer's "hold back."
Incentive: This is a general term used to motivate a customer to buy the car.
These are often times cash rebates or low interest financing.
Interest rate: This is the bank's fee for loaning you money. Interest rates are charged
as a percentage of the amount loaned to you.
Invoice: This is what the dealer wants you to think he bought the car for. Because of
"hold back" and secret factory-to-dealer incentives,
the invoice price is almost never the dealership's true cost.
Lease: If you lease a car you don't actually own it. You pay a monthly fee to use the car.
At the end of the term you return the car and walk away or you can buy it for the residual amount.
Lending Institution: Any company that loans you money.
They can be called banks, credit unions or the auto manufacturer itself.
Lessee: This is the person or customer who has leased the car.
Lessor: This is the party who is leasing the car to you. The Lessor is never the
dealership itself. The lessor is always the bank.
Money factor: This is a dealer term to describe the interest rate on a lease.
This factor is never listed as an interest rate, like 5.76%. It will appear as a decimal digit
like .00240. The way to calculate the money factor to an interest rate is to multiply the money
factor by 2,400.
MSRP: Stands for Manufacturer's Suggested Retail Price.
This is always considered the sticker price. Never pay MSRP for any car.
Pay-off Amount: This is the amount of money needed by the bank to pay them off.
Oftentimes when trading a car in you will need to get a 10-day pay-off amount. This is the amount
of money that is required by the bank for your obligation to be fulfilled.
Rebate: This term is very similar to incentive. In the car business, all rebates happen
immediately. You never have to wait 4 to 6 weeks to get your rebate money.
Residual Value: This is the bank's prediction of what the car will be worth at the end
of the lease term. The residual is the portion of the car that you do not pay for. The best
way to get the lowest lease payment is to find a bank that has the
highest residual value and the lowest money factor.
Sales Tax: Sales tax is paid one way in terms of leasing and one way in terms of financing
a car. If you are leasing, the sales tax you pay is a percentage of your monthly payment
which you pay each month. If you are financing a car, sales tax is figured on the entire amount
of the car and is paid in full the minute you buy the car.
Security Deposit: A security deposit comes into play only when leasing a vehicle.
You should always have the dealer waive the security deposit.
However sometimes you can put multiple security deposits down to reduce the money factor
(interest rate).
Term: This is the length of the loan, usually stated in months. This applies to
leasing and financing. They are often listed as 24, 36, 48, 60 and 72 months.
Title: Often referred to as the "pink slip." This is the legal document that states
the owner of the vehicle. If you finance or lease, the bank will typically hold your title
because they have a lien against the car. When the loan is paid in full, you will get a Title
that shows you as the legal owner and it will also show that the lien has been paid in full.
Wholesale Value: This is the value for which used cars are bought by dealerships. Then,
they turn around and sell them for retail value. The difference between these two numbers
is the dealership's gross profit.
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1) DealerSpeak
Every business has its own lingo, and if you have a working knowledge of the jargon in the car
business, it will help you in your negotiations. Here is a list of expressions you should know.
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