Dealer Dictionary
Don't know APR from MSRP? We've got you covered. These are the terms they use to confuse you—translated into plain English.
A
A fee charged by leasing companies to initiate a lease, typically $595-$1,095. This fee covers administrative costs and is usually non-negotiable, but some dealers may absorb it as part of negotiations. Always factor this into your lease comparison shopping.
Pro Tip: This fee should be disclosed upfront. If it appears at signing, the dealer may be trying to slip extra charges past you.
The wholesale value of your trade-in - what the dealer would pay for it at auction. This is typically lower than the retail value (what they'll sell it for). Understanding this helps you negotiate a fair trade-in offer.
Extra products or services the dealer adds to the vehicle, such as paint protection, fabric protection, window etching, or nitrogen-filled tires. These often have huge profit margins (500%+) and are usually unnecessary.
Warning: Dealers often pre-install these and claim they can't be removed. You can always decline and ask them to remove the charges.
The yearly interest rate you pay on a loan, including fees. A lower APR means less interest paid over the loan term. Always compare APRs when shopping for financing - dealers often mark up the rate by 1-3%.
Pro Tip: Get pre-approved at your bank first. The average bank rate is typically 2-3% lower than dealer financing.
B
A large final payment due at the end of a loan term. Common in some lease-to-own arrangements. While it lowers monthly payments, you'll owe a big lump sum at the end - often $5,000-$15,000.
When a salesperson or manager tries to get you to agree to a higher payment or price than originally discussed. They might say 'we can't make that deal work' and come back with a higher number.
Pro Tip: Stick to your number. If you've done your research, you know what's fair. Be prepared to walk away.
The actual interest rate the bank approves you for, before the dealer marks it up. If the bank approves you at 5% APR but the dealer quotes you 7%, that extra 2% is dealer profit called 'dealer reserve.'
Pro Tip: Always ask: 'What is the buy rate from the bank?' They're not required to tell you, but it reveals if they're marking up your rate.
A document that lists everything you're paying for: vehicle price, trade-in value, fees, taxes, and add-ons. Always review this line by line before signing anything.
C
In a lease, this is the negotiated price of the vehicle. Just like when buying, you can negotiate the cap cost down. A lower cap cost means lower monthly lease payments.
The sales technique used to get you to commit. Salespeople are trained in dozens of 'closes' - trial closes, assumptive closes, urgency closes. Recognize when you're being closed and take your time.
A used car that has passed the manufacturer's inspection and comes with an extended warranty. CPO programs vary widely - Toyota/Honda have excellent programs, while some brands barely inspect the car. Always verify the specific coverage.
Pro Tip: True CPO is manufacturer-certified only. If a dealer says 'dealer certified' or 'certified quality,' it's NOT the same as CPO and offers far less protection.
An unlicensed dealer posing as a private seller. They buy cars at auction (often with hidden problems), list them as 'private sale' to avoid dealer regulations, and flip them for profit. Red flags: multiple cars for sale, won't meet at their home, vague answers about the car's history.
Pro Tip: Run a VinSmart report - it shows how many times the car has changed hands. Multiple owners in a short time = likely curbstoner flip.
Warning: Always verify the seller's name matches the title. Ask to see their driver's license. If the title has been signed over multiple times recently, walk away.
D
What the dealer supposedly paid for the vehicle. However, this doesn't include holdback and dealer incentives, so the true cost is usually 2-4% lower than invoice. Sites like Edmunds show invoice pricing.
The extra profit a dealer makes by marking up your interest rate. If the bank approves you at 5%, the dealer might offer you 7% and pocket the 2% difference as profit. This can add thousands to your total cost.
Warning: Always ask: 'What is the buy rate from the bank?' The buy rate is what the bank actually approved you for before the dealer markup.
A legitimate fee (usually $1,000-$2,000) for shipping the car from the factory to the dealer. This is non-negotiable and the same for all dealers. However, any 'additional dealer delivery fee' is negotiable.
A fee charged at the end of a lease (typically $300-$500) if you don't buy or lease another car from the same brand. This is negotiable at lease signing - ask to have it waived or capped. Some brands waive it for loyalty.
Pro Tip: This fee is often waived if you lease another car from the same manufacturer. Factor it into your end-of-lease decision.
A fee dealers charge for paperwork. This varies wildly by state ($0 to $800+). Some states cap it. While often non-negotiable at individual dealers, you can shop dealers with lower doc fees.
Pro Tip: In some states (like California), doc fees are capped at ~$85. Know your state's laws.
Cash you pay upfront to reduce the amount financed. A larger down payment means lower monthly payments and less interest paid overall. Aim for at least 20% down to avoid being underwater on your loan.
E
The difference between what your car is worth and what you owe on it. Positive equity means your car is worth more than your loan balance. Negative equity (being 'underwater' or 'upside down') means you owe more than it's worth.
Additional coverage beyond the manufacturer's warranty. Dealers mark these up by 100-200%. If you want one, wait - you can buy it anytime before the factory warranty expires, often at a much lower price.
Warning: Never let them roll the warranty cost into your loan. You'll pay interest on it for years.
F
The department (and person) who handles your financing paperwork and tries to sell you add-on products. The F&I manager often makes more profit on a deal than the entire sales department. This is where most upselling happens.
Pro Tip: Before entering F&I, decide what you want. Practice saying 'no thank you' to every product they offer.
A negotiation worksheet that confuses buyers by mixing price, trade-in, down payment, and monthly payment together. This lets dealers move numbers around to hide what you're really paying. Refuse to negotiate using the four-square.
Warning: Negotiate only the out-the-door price. Handle trade-in and financing as separate transactions.
G
Covers the difference (gap) between what your car is worth and what you owe if it's totaled. Can be useful if you have a small down payment, but dealers charge $500-1,000 when your auto insurance company may offer it for $30-50/year.
H
A hidden 2-3% rebate paid by manufacturers to dealers on each car sold. This means even at 'invoice price,' dealers still make profit. Salespeople may not even know about holdback.
I
The price the dealer paid the manufacturer for the car (on paper). Due to holdback and incentives, the true dealer cost is usually lower. Still, knowing invoice price gives you negotiating leverage.
L
Essentially a long-term rental. You pay for depreciation plus interest (money factor), not the full car value. Lower payments but you own nothing at the end. Watch for mileage limits and wear-and-tear charges.
The ratio of your loan amount to the car's value. If you borrow $25,000 on a $20,000 car, your LTV is 125%. High LTV (over 100%) means you're underwater from day one. Aim for under 100%.
M
An extra charge dealers add during high demand, often $2,000-$10,000 above MSRP. This is 100% dealer profit. During normal market conditions, this should be $0. If you see a second sticker with 'market adjustment,' consider shopping elsewhere.
Warning: Market adjustments are negotiable. Many dealers will remove them if you're willing to wait or order from the factory. Never pay over MSRP unless there's genuinely no other option.
The penalty you pay at lease end for exceeding your mileage allowance. Typically $0.15-$0.30 per mile. Going 5,000 miles over at $0.25/mile = $1,250 fee. Be realistic about your driving habits when choosing your mileage limit.
Pro Tip: It's usually cheaper to buy extra miles upfront ($0.10-0.15/mile) than to pay overage at lease end. Track your mileage throughout the lease.
The interest rate on a lease, expressed as a decimal. Multiply by 2,400 to get the approximate APR. For example, a money factor of 0.00208 = about 5% APR. Dealers can mark this up just like loan rates.
The 'sticker price' - what the manufacturer recommends the car sell for. In a normal market, you should pay below MSRP. During shortages, dealers may charge 'market adjustments' above MSRP.
N
When you owe more on your car than it's worth. If you trade in with negative equity, that amount often gets added to your new loan - starting you underwater again. Try to pay down the loan or keep the car until you have positive equity.
Warning: Rolling negative equity into a new loan is one of the worst financial mistakes you can make.
O
Illegally altering a car's mileage to make it appear lower than actual. Digital odometers can be tampered with using special tools. Signs include wear that doesn't match mileage, service records showing higher mileage, or a vehicle history report with inconsistent readings.
Pro Tip: Run a VIN report through VinSmart before you visit. It shows odometer readings from every service and inspection, making rollbacks obvious.
Warning: Odometer fraud is a federal crime, but it still happens. Always run a VIN check and compare mileage with service records. Look for wear on pedals, steering wheel, and seats that doesn't match claimed mileage.
The total amount you'll pay, including all taxes, fees, and charges. This is the number that matters. Always negotiate the OTD price, not the sticker price, monthly payment, or any other number.
Pro Tip: Get OTD quotes via email from multiple dealers. Compare apples to apples.
P
Inflating your monthly payment to include products you didn't agree to (warranties, insurance, protection packages). The F&I manager might quote '$450/month' when your actual payment should be $380.
An independent inspection by a mechanic of YOUR choice before buying a used car. Costs $100-$200 but can save thousands by uncovering hidden problems. The mechanic checks engine, transmission, suspension, frame damage, and more.
Pro Tip: Never skip a PPI on a used car. If the seller refuses to let you get one, walk away immediately - they're hiding something.
A fee charged if you pay off your loan early. Most auto loans don't have this, but always verify before signing. If there's a prepayment penalty, consider a different lender.
R
Money offered by the manufacturer to incentivize purchases. Can be taken as cash off the price or sometimes as a lower interest rate (but usually not both). Compare which option saves you more.
A car that was previously declared a total loss (salvage) but has been repaired and passed a state inspection. While potentially drivable, these cars are worth 20-40% less and can be difficult to insure or resell. Quality of repairs varies wildly.
Pro Tip: A VinSmart report shows WHY it was totaled (accident vs flood vs theft). Flood damage is the worst - avoid at all costs.
Warning: Always get a PPI from a body shop specialist. The inspection may have only checked that the car runs, not that repairs were done safely or correctly.
In a lease, the predicted value of the car at lease end. Higher residual = lower monthly payments. This is set by the manufacturer and isn't negotiable, but it affects which cars lease well.
S
A car declared a total loss by an insurance company due to damage (accident, flood, theft recovery). The car cannot be legally driven until repaired and re-inspected. Salvage cars should be avoided unless you're a mechanic buying for parts.
Pro Tip: A VinSmart report reveals salvage history even if the title has been 'washed' across state lines. Never skip this step on used cars.
Warning: Many salvage cars have hidden structural damage. Flood cars are especially dangerous - electronics fail months later and mold grows in hidden areas.
When you drive off with the car before financing is finalized. Days later, the dealer calls saying financing 'fell through' and you need to sign for worse terms or return the car. This is often a scam to get you to accept a worse deal.
Warning: Don't take the car until financing is 100% approved. Get it in writing.
T
The length of your loan, typically 36, 48, 60, 72, or 84 months. Longer terms mean lower monthly payments but more interest paid overall. Avoid 72+ month loans - they increase your risk of being underwater.
A fraud scheme where salvage or flood-damaged cars are moved between states to 'wash' the title clean. The car gets re-titled without the salvage brand, making it appear clean. This is illegal but still happens.
Pro Tip: VinSmart uses the federal NMVTIS database that tracks title history across ALL states. It catches washed titles that state DMV records miss.
Warning: Always run a VIN check on used cars. A clean title doesn't mean clean history. Look for signs of flood damage: musty smell, water lines, mismatched screws, corroded electrical connections.
Your current vehicle that you sell to the dealer as part of your purchase. The trade-in value reduces the price of your new car (and the sales tax owed in most states). Get quotes from CarMax, Carvana, and multiple dealers before negotiating.
U
A vehicle that has had a previous owner. 'Certified Pre-Owned' (CPO) means it passed the manufacturer's inspection and comes with an extended warranty. Non-CPO used cars should always get an independent inspection.
V
A report showing a car's past: accidents, title issues, service history, ownership changes, and odometer readings. Services like VinSmart, Carfax, and AutoCheck pull data from insurance companies, DMVs, and service centers. Essential for any used car purchase.
Pro Tip: VinSmart uses the same official NMVTIS database as Carfax but costs less (~$10 vs $40). Always run a history report before making an offer.
A unique 17-character code identifying every vehicle. Use it to get a vehicle history report and to verify the car matches the paperwork. The VIN is on the dashboard and driver's door jamb.
Pro Tip: Get the VIN from the listing BEFORE you visit. Run it through VinSmart ($9.95) to check for accidents, title issues, and odometer fraud. This 2-minute check can save you from a $20,000 mistake.
W
The federally required label showing MSRP, standard equipment, optional equipment, fuel economy, and safety ratings. If a dealer has removed it or added a second sticker with 'market adjustment,' be very cautious.