Car Buying Encyclopedia
Straightforward explanations of the terms you encounter while leasing, financing, buying, trading, or returning a vehicle.
95 topics
A
Acquisition Fee
An administrative charge assessed by a leasing company when a lease is created.
Adjusted Capitalized Cost
Adjusted capitalized cost is the amount used in the final lease calculation after eligible reductions are subtracted from the gross capitalized cost.
Amount Financed
Amount financed is the total amount of credit provided to complete a vehicle purchase after applicable cash, credits, and other adjustments.
APR
APR, or annual percentage rate, expresses the yearly cost of borrowing for an auto loan and can include certain finance-related charges.
Auto Loan Preapproval
An auto-loan preapproval is a conditional lending decision that estimates how much a lender may finance and under what general terms.
Auto Loan Refinancing
Auto loan refinancing replaces the current vehicle loan with a new loan.
B
C
Capitalized Cost
Capitalized cost is the starting amount used to calculate a vehicle lease. It is similar to the amount being financed and can include the negotiated vehicle price plus certain fees, products, or unpaid balances.
Capitalized-Cost Reduction
A capitalized-cost reduction is an amount applied upfront to lower the adjusted capitalized cost of a lease. It can come from customer cash, rebates, or positive trade equity.
Cash Buyer
A cash buyer completes the purchase without using an auto loan for the transaction.
Cash Price
Cash price is the vehicle transaction price before future financing charges are added.
Certified Pre-Owned
A certified pre-owned vehicle is a used vehicle that meets a manufacturer's eligibility, inspection, reconditioning, and warranty requirements.
Co-Buyer
A co-buyer is a joint applicant who shares responsibility for the loan and may share ownership of the vehicle.
Conquest Incentive
A conquest incentive is a manufacturer benefit offered to customers who currently own or lease an eligible competing brand.
Cosigner
A cosigner agrees to share legal responsibility for an auto loan when the primary applicant needs support.
Credit Tier
A credit tier is a lender-defined category used to group applicants with similar credit risk.
D
Dealer Add-Ons
Dealer add-ons are products, accessories, or services installed or sold by the dealership rather than included as factory equipment.
Dealer Cash
Dealer cash is manufacturer-funded support paid to the dealership on eligible vehicles or transactions rather than directly offered to the customer.
Dealer Discount
A dealer discount is a reduction in the vehicle price provided by the dealership rather than a customer-specific manufacturer incentive.
Dealer Trade
A dealer trade is an arrangement in which one dealership obtains a vehicle from another dealership, usually by exchanging inventory or compensating the other store.
Dealer-Arranged Financing
Dealer-arranged financing occurs when the dealership submits a customer's credit application to one or more lenders and presents an approved loan option.
Dealer-Installed Option
A dealer-installed option is equipment or an accessory added by the dealership after the vehicle arrives.
Debt-to-Income Ratio
Debt-to-income ratio compares recurring monthly debt obligations with gross monthly income.
Demo Vehicle
A demo vehicle is dealership-owned inventory used for test drives, management, display, or promotion before retail sale.
Destination Charge
A destination charge is a manufacturer-set amount associated with transporting a new vehicle from the factory or port to the dealership network.
Disposition Fee
A disposition fee is a charge that may be assessed by the leasing company when a vehicle is returned at the end of the lease.
Disposition Fee Waiver
A disposition fee waiver removes or credits the contractual return fee under an eligible program.
Documentation Fee
A documentation fee is a dealership charge associated with preparing and processing paperwork for the vehicle transaction.
Down Payment
A down payment is money paid upfront to reduce the amount financed when purchasing a vehicle.
Due at Signing
The total amount a customer is expected to pay when completing a vehicle transaction.
E
Early Lease Termination
Early lease termination is the process of ending a vehicle lease before the scheduled maturity date.
Excess Mileage
Excess mileage is the number of miles driven beyond the contractual lease allowance. The leasing company may charge a per-mile fee when the vehicle is returned.
Excess Wear and Tear
Excess wear and tear is damage or deterioration beyond the leasing company's guidelines for normal vehicle use.
F
Factory Order
A factory order is a request for a manufacturer to build a selected vehicle configuration for a dealership and customer.
Factory-Installed Option
A factory-installed option is equipment added during production and listed on the manufacturer's window sticker.
Finance Charge
The finance charge is the cost of borrowing money under the auto loan, expressed as a dollar amount over the scheduled term.
G
H
I
In-Transit Vehicle
An in-transit vehicle has been assigned to or ordered by a dealership but has not yet arrived.
Invoice Price
Invoice price is the amount shown on the manufacturer's invoice to the dealership for the vehicle, before considering every credit, holdback, incentive, or business expense.
L
Lease Buyout
The purchase of a vehicle that is currently under a lease contract.
Lease Equity
Lease equity is the difference between a leased vehicle's current value and the amount required to satisfy the lease or purchase the vehicle.
Lease Extension
A lease extension allows the customer to keep the leased vehicle beyond the original maturity date with lender approval.
Lease Grounding
Lease grounding is the formal process of accepting and recording a leased vehicle as returned.
Lease Maturity Statement
A lease maturity statement summarizes the upcoming end of the lease and the lender's next steps.
Lease Payoff
A lease payoff is the amount required to satisfy the leasing company's financial interest in the vehicle at a particular time.
Lease Term
A lease term is the contractual length of time a customer agrees to lease the vehicle, commonly measured in months.
Lienholder
A lienholder is a lender or other party with a secured financial interest recorded against a vehicle.
Loan Term
An auto loan term is the length of time scheduled to repay the vehicle loan, usually stated in months.
Loan-to-Value Ratio
Loan-to-value ratio, or LTV, compares the amount being financed with the lender's recognized value of the vehicle.
Loyalty Incentive
A loyalty incentive is a manufacturer or lender benefit offered to customers who currently own or lease an eligible vehicle from the same brand or corporate family.
M
Manufacturer Financing
Manufacturer financing is vehicle financing offered through a lender affiliated with or supported by the automaker.
Manufacturer Rebate
A manufacturer rebate is an incentive funded by the automaker or affiliated program to reduce the effective cost of an eligible vehicle transaction.
Market Adjustment
A market adjustment is an amount added by the dealership above the vehicle's MSRP because of demand, limited supply, or the dealer's pricing strategy.
Mileage Allowance
A mileage allowance is the maximum number of miles a leased vehicle can be driven under the contract without an excess-mileage charge.
Model Year
Model year is the manufacturer's designation for a vehicle version and may differ from the calendar year of production or sale.
Money Factor
The financing rate used to calculate part of a vehicle lease payment.
MSRP
MSRP is the manufacturer's suggested retail price for the vehicle and installed factory or port options listed on the window sticker.
Multiple Security Deposits
Multiple security deposits, often called MSDs, are additional refundable deposits that may reduce the money factor on an eligible lease.
N
Negative Equity
Negative equity exists when the amount owed on a vehicle is greater than the vehicle's current market value.
New Old Stock
New old stock is an untitled new vehicle from an earlier model year that remains in dealership inventory.
Normal Wear and Tear
Normal wear and tear is the level of minor deterioration the leasing company accepts without an excess-wear charge.
O
One-Pay Lease
A one-pay lease allows the customer to make most or all scheduled lease payments in a single upfront payment rather than paying monthly.
Option Package
An option package groups multiple vehicle features together for an added manufacturer price.
Out-the-Door Price
Out-the-door price is the complete amount required to purchase and register the vehicle before considering the cost of financing over time.
P
Port-Installed Option
A port-installed option is manufacturer-approved equipment added after production but before dealership delivery.
Positive Equity
Positive equity exists when a vehicle's current market value is greater than the amount owed on it.
Pre-Return Inspection
A pre-return inspection evaluates a leased vehicle's condition before the final return.
Prepayment Penalty
A prepayment penalty is a charge that may apply when a borrower pays off a loan earlier than the contract allows without cost.
Principal
Principal is the amount of money borrowed to finance the vehicle before interest is added.
Private-Party Value
Private-party value is the expected price when one consumer sells a vehicle directly to another.
Pull-Ahead Program
A pull-ahead program allows an eligible customer to leave a lease early when entering another qualifying transaction.
Purchase-Option Fee
A purchase-option fee is a contractual charge that may apply when the lessee buys the vehicle.
R
Residual Value
The estimated value of a leased vehicle at the end of the lease term.
Retail Installment Sales Contract
A retail installment sales contract is the agreement that finances a vehicle purchase through scheduled payments.
Retail Value
Retail value is the expected price of a vehicle offered to an end customer through a dealership or retail seller.
S
Security Deposit
A lease security deposit is an amount held by the leasing company to protect against certain unpaid obligations or vehicle-related charges.
Selling Price
The selling price is the agreed price of the vehicle before taxes, government fees, financing charges, and other transaction items are added.
Service Loaner
A service loaner is a dealership vehicle provided temporarily to service customers and later offered for sale or lease.
Simple-Interest Auto Loan
A simple-interest auto loan calculates interest from the outstanding principal balance over time.
Soft Credit Inquiry
A soft credit inquiry reviews credit information without generally affecting the consumer's credit score.
T
Third-Party Lease Buyout
A third-party lease buyout occurs when someone other than the lessee or an authorized brand dealership purchases the leased vehicle.
Total of Payments
Total of payments is the sum of all scheduled loan payments if the contract is followed through the full term.
Trade-In Value
Trade-in value is the amount a dealership or buyer is willing to credit for the customer's current vehicle as part of another transaction.
Trim Level
A trim level is a manufacturer-defined version of a model with a particular combination of standard equipment, styling, and performance.
V
Vehicle Allocation
Vehicle allocation is the manufacturer-controlled distribution of production units or build slots to dealerships.
Vehicle Appraisal
A vehicle appraisal estimates a car's current purchase, trade, retail, or insurance value.
Vehicle History Report
A vehicle history report compiles available VIN-linked records such as title events, reported accidents, ownership, mileage, and service entries.
Vehicle Identification Number
A VIN is the unique identifier assigned to a specific vehicle.
Vehicle Purchase Order
A vehicle purchase order describes the car or build and the terms under which the customer agrees to purchase it.
Vehicle Title
A vehicle title is the official ownership document maintained by the relevant motor-vehicle authority.
W
Wholesale Value
Wholesale value is the amount a vehicle may command in dealer-to-dealer, auction, or other trade-market channels.
Window Sticker
A new-car window sticker is the manufacturer label showing key vehicle, equipment, pricing, fuel-economy, and identity information.