|
As if picking out the make and model of car you want
wasn't complicated enough, auto dealers and their advertisements
use the tricky language of "auto speak." We have translated
the 15 most common terms to help you negotiate the best deal.
Add-on interest -- Interest
that is computed at the beginning of the loan, then added to the
principal, so that all must be repaid, even if the loan is paid
off early.
Base price -- The cost
of a car without options. This price includes standard equipment
and the manufacturer's warranty and is printed on the Monroney sticker.
Blue Book -- Formally,
it refers to the Kelley Blue Book, an industry guide dealers use
to estimate wholesale and retail vehicle pricing. In common parlance,
"the blue book price" can actually refer to a price looked
up in one of the many guides to pricing. The books now come in a
variety of hues, are issued by many organizations, and are commonly
available online or in the reference sections of public libraries.
Dealer holdback -- An
allowance, usually between 2 percent and 3 percent of manufacturer's
suggested retail price, that manufacturers provide to dealers. A
holdback allowance may allow the dealer to pay the manufacturer
less than the invoice price. A buyer could obtain a car below invoice
price and the dealer would still make a profit.
Dealer incentives -- Programs
offered by manufacturers to increase the sales of slow-selling models
or to reduce excess inventories. Dealers may elect to pass on the
savings to the buyer.
Dealer preparation, or dealer
prep or preparation charges -- An additional charge that
dealers try to impose on buyers. It represents pure profit for the
dealers, who have already been paid by the manufacturer for the
cost of preparing the car for sale.
Destination charge --
The fee charged for transporting the vehicle to the dealer from
the manufacturer or port of entry. This charge is to be passed on
to the buyer without any markup.
Extended warranty or Service
contract -- A contract that covers certain car repairs or
problems after the manufacturer's or dealer's warranty expires.
Extended warranties are sold by car manufacturers, dealers and independent
companies. With a new car, the extended warranty usually must be
purchased by the end of the first year of ownership.
Invoice price -- The manufacturer's
initial charge to the dealer. The price may not be the dealer's
final cost because dealers receive rebates and other incentives
from the manufacturer. The invoice price always includes freight,
also known as the destination charge.
Monroney sticker or Dealer sticker
price -- The sticker on the car window that shows the base
price, the manufacturer's installed options with the manufacturer's
suggested retail price, the manufacturer's destination charge, and
the car's fuel economy (mileage). This label is required by federal
law and it is only removed when the car is sold by the purchaser.
Named after A.S. "Mike" Monroney, a longtime Oklahoma
congressman who wrote the Automobile Information Disclosure Act.
Prepayment penalty
-- A lender's charge to the borrower for paying off the loan
before the end of the term.
Rebate -- A manufacturer's
reduction on the price of the car as an incentive to buyers. Rebates
appeal to people with no credit or less-than-perfect credit who
cannot qualify for the lowest-rate loan. A rebate may also appeal
to first-time buyers who don't have a lot of cash for a down payment
or another car to trade in.
Rule of 78s -- A mathematical
formula that was devised in the days before modern calculators.
The formula was a quick way for lenders in the 1920s and 1930s to
estimate payoff amounts when a customer paid ahead on an installment
loan. Some auto lenders still use the "Rule of 78s" formula
to calculate a rebate of finance charges when a customer pays off
a pre-computed loan early.
For a borrower looking to end an auto loan early,
there isn't a worse way a lender could calculate your payoff amount.
The Rule of 78s formula packs extra interest charges into the early
months of a loan. Using Rule of 78s, a lender typically collects
three-quarters of a loan's interest in the first half of a loan
term. The Rule of 78s can only be applied to pre-computed loans
that are paid ahead of schedule. The formula cannot be applied to
simple interest loans.
Title
-- A legal document containing specific information about
the vehicle. The title is the official proof of ownership and is
used to transfer ownership from one person to another.
Trade-in value -- The
amount that the dealership will credit you for the vehicle you provide
as partial or full payment for another vehicle. Amount credited
is frequently about 5 percent below the wholesale value of the vehicle.
For a complete list of auto terms, check out our glossary.
|
