Nov 29, 2019
By Mariclare Cranston, Content Specialist

A Glossary of Car-Buying Terms

So you’re ready to buy that new car - congratulations! Before you get caught up in daydreaming about cruising around the Hudson Valley in your new wheels, though, there are some words and phrases to be familiar with to help you navigate the process of buying a new car or truck. Here’s our list of car shopping lingo to know before you go.

► Dealership Lingo

When you’re at the dealership, it can sometimes feel like they’re speaking a different language. Don’t worry, we’ve got you covered with a list of the most common words and phrases you’ll hear.

Acquisition Fee

This is a term you’ll hear if you plan on leasing your vehicle, and it refers to the fee that a financial institution charges the dealership to finance the lease. This cost is often passed on to the person leasing the vehicle.

Blue Book Value

This is a reference to the Kelley Blue Book value of vehicles and is often used to determine how much your trade-in might be worth. You can see the Blue Book Value of your car here.

Dealer Incentives

Sometimes, manufacturers will offer special discounts to dealers, which are then passed on to you, the buyer, in the form of dealer incentives. Look for these during seasonal sales or on models that are less popular.


F&I stands for Finance and Insurance, and this is the office where you will sign the paperwork for your new car or truck. It is also where the dealership will offer you additional items, such as an extended warranty or accessories, so you should know before you go in to sign what you can and cannot afford.

Factory Incentives

These aren’t the same as dealer incentives and you’ll have to ask to have any factory incentives applied when you’re negotiating the price of your car or truck. They’re typically offered as a cash-back rebate or reduced interest rate.

Invoice Price

This is the price that the dealership paid the manufacturer for the car or truck. Dealerships need to charge above the invoice price so that they can make a profit.

Limited Warranty

If you’re purchasing a new car or truck, it’ll be covered by a manufacturer warranty. This warranty is limited both in duration and mileage, and won’t cover some items.

Monroney Sticker

Ever wonder what that big sticker in the window of all the cars in the dealer’s lot is called? It’s a Monroney Sticker, named for the U.S. Senator who sponsored the legislation requiring the stickers.


The Manufacturer’s Suggested Retail Price, or the amount that the manufacturer suggests the dealer should charge for the car or truck. It is the dealer’s decision, though, whether to charge more or less than the MSRP.


The title is the proof of ownership of the vehicle. It is issued by the Department of Motor Vehicles and is sometimes referred to as the pink slip. The title will have a lien on it stating that the vehicle is owned by the financial institution that holds the loan until that loan is paid off.


If you plan on turning your current car or truck over to the dealer to receive money off of your purchase price, then you’re planning on trading-in your vehicle. Essentially, the price that the dealer is paying you for your current car is subtracted from the cost of your new one.

Trim Level

The trim level of a vehicle specifies what equipment and features will come standard. Trim levels are often a letter combination (EX, L, S). Higher trim levels will cost more because the standard equipment is considered higher-end (think leather seats instead of fabric). If there is a certain feature you have your heart set on, compare which will be more expensive: purchasing a car with a higher trim level so that the feature comes standard, or adding it on as an option to a lower trim level.

Service Contract / Extended Warranty

This is a product sold by the dealer that could cover repairs after the factory warranty expires. Like any offer being made to you throughout the negotiation, consider the overall cost of adding a service contract to your new car or truck.


Manufacturers will sometimes offer cash back, or a rebate, as an incentive to purchase their vehicles.

Residual Value

Another term associated with leases, residual value is the value that remains in a product after time has passed. Financial institutions use residual value to predict how much a car or truck will be worth at the conclusion of a lease.

► Finance Lingo

You’ve found the car of your dreams, and you’re ready to talk money. Here are the terms you need to be familiar with before you start looking for a loan.

Annual Percentage Rate (APR)

The APR is the interest on your loan. It is based on a percentage of the total amount borrowed. You’ll want to secure a loan with the lowest rate possible to help save money.

Buyout Price

If you choose to purchase your car at the end of your lease, you’ll be paying the buyout price. If you think you may opt for this, really look at the cost of buying the car outright versus the buyout price at the end of the lease. Your monthly payment may be low, but the buyout price may end up costing you.

Closed-End Lease

At the end of a closed-end lease, you have the option of either buying the vehicle or returning it to the dealer. If you opt to purchase it, the cost will be the residual value that was outlined in your lease agreement. This type of lease is also referred to as a walk-away lease.

Destination Fee

This fee covers the cost of transporting the vehicle from the manufacturer’s plant to the dealership. This fee is not included in the MSRP.

Disposition Fee

A term that applies to leases, the disposition fee is what you’ll pay at the end of your lease to cover the costs of preparing the car or truck for its next sale. It’s sometimes called a Termination Fee and while it’s not usually something that can be negotiated it may be waived if you lease or buy another vehicle from the same dealer.

Down Payment

The down payment is the money you pay upfront for your car or truck. It comes out of your pocket and is not a loan. Keep in mind that while many dealers offer $0 down incentives, the more money you put down, the smaller the loan you’ll have to get. When you factor in your interest rate, that could save you money in the long run.

Drive Off

The amount you’re going to have to pay the dealer to take possession of your car and drive it away. It will include items like your down payment, sales tax, title, and documentation fee. If you’re leasing your vehicle, it may also include your first month’s payment.

Early Termination Fee

If you end your lease early, you’ll be hit with an early termination fee, which can be costly. Sometimes this fee will also be charged if your leased vehicle is stolen or totaled.

Excess Wear Charge

If you’re leasing, you may be charged for excess wear at the end of your lease if you exceed your mileage limit or if there’s any damage to the paint, body or wheels of the car. If you add after-market accessories they may also result in an excess wear charge if you don’t remove them.

GAP Insurance

This is optional coverage that will protect you in the event your car or truck is ever totaled in an accident. It will cover the difference between what your insurance pays out and the amount you still owe on the car. For more info on GAP Insurance click here.

Interest Rate

The interest rate, also known as the APR, is the interest on your loan. It is based on a percentage of the total amount borrowed. You’ll want to secure a loan with the lowest rate possible to help save money.


This is the length of your loan or lease. It is usually somewhere from 24 to 72 months.

Upside Down

If you end up owing more on your vehicle than it’s worth, then you are upside down or under water. Being upside down becomes a major factor if your car is totaled in an accident because your insurance coverage will compensate you on the replacement value, not on what you owe. GAP insurance is designed to protect you in that situation.

It’s a lot, right? Don’t worry. Take your time when you shop, and don’t be afraid to ask questions. You don’t need to memorize every term, just be familiar enough with them to understand what you’re spending your money on.

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