Car-Buying Terms You Need to Know

SVG Motors has a goal. We want our customers to feel comfortable buying a vehicle that they love at a price that fits comfortably in their budget. Our sales team is dedicated to working with each customer to meet that goal and to make it fun in the process. Part of achieving that goal comes through transparency and education so that you can walk into our dealership feeling confident. With this in mind, this blog post will teach you some of the common terms and language you’ll hear when shopping for a vehicle. 

Acquisition Fee

An acquisition fee is a term you’ll hear if you plan to lease a vehicle. This fee is charged by the lenders to the dealer for financing your vehicle. Industry standard is to pass this fee onto the customer and it is typically not negotiable. Acquisition fees vary, and are affected by the price of the vehicle you’re leasing. Average acquisition fees fall in a range of $300 to $1000, but again, this can vary.

Annual Percentage Rate

The Annual Percentage Rate (also known as APR) is the interest fee you will be charged (as a part of your monthly payment) for the privilege of borrowing money. It’s going to vary significantly depending on your credit score and market trends. Some customers with an excellent credit history may pay as little as 4 or 5% for a loan, while others with no credit or low credit may pay rates as much as 3 to 4 times higher than those with excellent credit.

Blue Book Value

When you buy a new (or newer) vehicle, you may want to give the dealership your old car as a form of down payment. To give you a fair and accurate price for your car, dealers use a resource provided by the Kelley Blue Book company (KBB). Kelley Blue Book is a highly respected company that produces a used car pricing guide and have been doing so since 1926. KBB updates their data often to keep up with market trends and depreciation. The KBB pricing guide is commonly accepted throughout the automotive industry for accurate pricing information for nearly every make and model of vehicle.

Closed-End Lease

When you lease a vehicle, you’ll usually be leasing it on a closed-end lease. That means that after the term (length) of the lease has passed, you will be given the choice to purchase the vehicle for the residual value (estimated value of the vehicle at the end of your lease), or  you may return it to the dealer and have no further liability or costs. Most closed-end leases are either 24 or 36 month leases.

Dealer Incentives

Dealer incentives are discounts that the vehicle manufacturer offers to the dealer, who will then pass along those savings to the customer. Most manufacturers provide new incentives on a monthly basis.

Dealer Addendum Sticker

Often times, dealers will install accessories or upgrades to a vehicle once it’s on the lot. Because these accessories weren’t installed at the factory, the dealer must add these fees on top of the Manufacturer’s Suggested Retail Price (MSRP). The most common upgrades you will find on a Dealer Addendum Sticker include upgraded wheels, or undercoating, or paint protection. Keep in mind that since these items have already been installed on the vehicle that you’re considering, the price may not be negotiable.  If you do not want these features, ask your dealer to find a vehicle for you that has not had these upgrades installed.

Destination Fee

We all know vehicles are produced in great quantities at factories. Then they need to be transported to the car lots for sale. This is a costly endeavor so the manufacturers often pass this fee along to the customer. It is unavoidable (on brand new cars) and is not a part of the MSRP. How far the dealership is from the factory can influence the cost of the destination fee. Typically it will be between $825 and $1,250. Be prepared to add this fee to the cost of your vehicle (if you’re buying brand new).

Disposition Fee

When you rent a vacation house, you’re often charged a cleaning fee to covers the cost of a maid service to clean and prepare the house for the next renter. Think of a disposition fee in the same way. It is a fee charged by the finance companies at the end of a lease to cover the costs associated with preparing the vehicle to be sold to someone else. Sometimes it’s called a termination fee and these are rarely negotiable.

Document Fee

You may sometimes hear document fee referred to as a doc fee. This is a fee a dealer charges to cover the huge amount of paperwork required to accept a trade-in, prepare financing paperwork, and other administrative tasks. This fee is different from state to state. It is usually around $100. In some instances, this can be negotiated.

Down Payment

If you have some of the cash necessary to buy your vehicle (but not all of it), this cash is your down payment. Your trade-in can serve as a down payment as well. By providing a down payment, your loan amount will decrease and your payments will be lower, so the more down payment you have, the better. Usually, those with lower credit scores may be required to provide a down payment. However, dealerships often have “zero down” events where they offer special financing options on certain vehicles that you can buy without having to use a down payment at all.

Drive Off (a.k.a. “Total Due at Signing”)

Many of the fees discussed earlier in this blog post will be included in the Drive Off. This is the total amount of money the buyer (or lessee) is required to provide in order to take possession of the vehicle. If you’re buying the vehicle, the Drive Off will include your down payment, doc fee, sales tax, and title fee. Many financing companies will let you include these costs in your loan so that you don’t have to actually pay these costs at the time of purchase (although you will eventually pay them because they’ll be factored into your monthly payment making it higher). If you are purchasing the vehicle, the total amount will include your down payment, doc fee, sales tax and title. If you are leasing a vehicle, the Drive Off may include the down payment, first month's payment, doc fee, acquisition fee, sales tax and title.

Early-Termination Fee

If, during your lease, you encounter a situation where you cannot or do not want to continue paying for the vehicle, you will pay a penalty for breaking the lease contract. The fee is usually fairly substantial. If you do not have gap insurance you may also have to pay this fee if the vehicle is stolen or damaged beyond repair in an accident.

Excess Wear Charge

When you lease a vehicle, it technically does not belong to you. You are paying for the right to use the vehicle during the lease term. When the lease is over, it is expected for you to return the vehicle in good condition. If there is any damage to the vehicle such as paint damage, body damage, bald tires, you will be expected to pay for these damages. Also, if you have made modifications to a vehicle such as tinting the windows or adding aftermarket wheels, you will be charged for removal of these items. One other fee you may be required to pay is an “over mileage fee”. When you lease a vehicle, the terms will state how many miles you will be allotted for each year of the lease. Common lease mileage allotments are 10,000 or 12,000 per year. If at the end of the lease, you’ve driven the vehicle more than 20,000 or 24,000 miles (on a 2 year lease), you’ll be expected to pay for that. Standard charges are $.25 per mile over what is allotted.

Extended Warranty

An extended warranty may also be called a service contract. This is a feature that some dealerships offer to make sure that once your factory warranty is over, you’ll still be covered for most parts or service. This can be exceptionally helpful for people who aren’t do-it-yourselfers. Also, as vehicles become increasingly dependent on computerized technology that require very specialized knowledge and tools to fix that many backyard mechanics cannot address, more and more people are choosing to purchase service contracts.

Factory Incentives

Factory incentives differ from dealer incentives because they are offered from the manufacturer directly to the customer. Standard factory incentives include cash-back rebate offers or low loan interest rates. Often, the dealership will be aware of these incentives and will automatically apply them to your vehicle sale.


When you and your assigned sales representative have agreed upon a price for your trade-in and the purchase price on the new vehicle, you’ll transition to the F&I department. F&I is Finance and Insurance. This is where you will review and sign all of the paperwork required to complete your purchase. Make sure that you review your paperwork carefully at this stage so that you can review the pricing for dealer-installed services and products, such as undercoating services, accessories and service contracts are priced correctly and that the interest rate you are paying for your loan is a number you’re comfortable with. If you find anything you are unsure about, now is the time to voice your opinion. This is a big responsibility to you, the buyer. Once the paperwork is signed, it is unfair to the dealer to come back later and say you were unhappy with the terms.

Gap Insurance

Some vehicle insurance companies will offer you something called gap insurance in addition to comprehensive and collision. 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 if the vehicle is stolen or damaged beyond repair (commonly referred to as “totaled”). Having gap insurance means that if something catastrophic happens to your car, you can count on your insurance to pay the car off in full. No one wants to have to continue making payments on a car they don’t have making gap insurance a purchase to help you sleep a little better at night. Dealerships offer gap insurance. You may want to consider this as an additional purchase to your vehicle, but before you commit, call your insurance company (Geico, State Farm, etc.) and find out if you already have gap insurance on your existing policy.

Interest Rate

Interest Rate is the same thing as APR. Sometimes you may also hear it referred to as finance rate. It’s the price you pay, spread out of the term of your loan and added you’re your monthly payments, for the privilege of being given money or goods that you haven’t yet earned.

Invoice Price

Invoice price is also often called “Dealer Invoice” or “Dealer Sticker”. We have previously written an entire blog post about what Dealer Invoice is. You can read it here.

Limited Warranty

When you buy a vehicle, the manufacturer guarantees it will work as expected for specific amount of time and/or miles. Usually the limited warranty covers the engine and transmission but does not cover what is considered consumable items. Consumable items include things that wear out regularly and are expected to be changed on pre-determined intervals such as brakes, tires, windshield wipers and more. If you are unsure of what your warranty includes, be sure to ask your sales staff to explain the details to you. Often, pre-owned vehicles will not include any kind of warranty at all.

Monroney Sticker, or Window Sticker

The Window sticker is required by law. A  U.S. senator from Oklahoma, Almer Stillwell "Mike" Monroney, sponsored the legislation in 1958 so that consumers could be aware of a vehicle’s key features, price and statistics easily. The window sticker is required to display the MSRP, fuel mileage, country of origin and often includes other information useful to the buyer.


Manufacturer's Suggested Retail Price is the price the manufacturer recommends the dealer charge for the vehicle. This is a negotiable price and can often be lowered by the use of dealer or manufacturer incentives and rebates.


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

Residual Value

This is an important term for those who decide to lease a vehicle. This is a price that the dealer discloses at the time of the initial lease signing stating what price you will pay if you decide to buy the vehicle after your lease is over. This price is not negotiable and is set by the bank, finance or leasing company. The number is an estimated valuation of the vehicle at the end of your lease.

Service Contract

A warranty agreement between the buyer and the dealership that will cover the cost of many repairs or services required after the vehicle's factory warranty has expired. This product will be offered to you in the F&I office.

Subprime Loan

If you have a low credit score, or you’re a first time buyer with no credit history, you represent a high risk to the lending company. Because you have not established yourself as a reliable borrower, you will have to pay more in interest fees than someone who has a good history of borrowing. Many manufacturers recognize that there are younger buyers out there who will be responsible but do not have a credit history yet, so they will offer special subprime loan rates.


A term is the number of months you’ve agreed to take to pay off your loan or lease. Usually the term is between 24 and 72 months. The longer the term, the lower your payments will be, but the more likely you are to encounter negative equity (read “upside down” below for more information).


The title is the piece of paper issued to you by the state that proves you own a specific vehicle. If you owe money on your vehicle, your lender will hold your title until the vehicle is paid in full. If you do owe money on your vehicle, you’ll be given a special copy of your title called a “memo title” that you can use to purchase license plates for your vehicle.


When you own a vehicle you may give it to the dealership to use as a down payment on a new(er) vehicle. You and the dealer will agree on a price for your trade-in and it will be deducted from the loan amount on your new car. Keep in mind that dealerships must be able to make money on a trade-in so they will offer you a wholesale price for your car. It will be less than what you could make selling your car on your own to private buyer. However, selling your car to a private buyer takes work and effort. It’s up to you to determine if it’s easier to just trade it in.

Trim Level

Most all vehicles are available with different feature sets to suit the needs of many different buyers. Some people may like to have a fancier car, while others may just want standard transportation. The differences between these two extremes are addressed by having different trim levels. The trim level you choose will affect the MSRP or purchase price.

Upside Down (or Negative Equity)

Being Upside Down means you owe more money on your vehicle than what its current market value is. This is also called negative equity. This is an important term to know if you owe money on a car that you’d like to trade-in. If you owe more money than what a vehicle is worth, the dealership may still buy it for a price you both agree on, but because it will be less than what you owe, the difference between the two numbers will need to be added to the purchase price of your new car. Don’t feel bad if you’re in this situation. This happens to a lot of people because they buy cars but want a low monthly payment. When you have a low monthly payment, it means you’ll have a longer term – resulting in your payments not keeping up with the rate of depreciation.  


Categories: Finance