Every market has its language, and the automotive market is no exception. If you’re planning on buying your first car, you should learn to talk shop.
You might think that understanding the jargon is trivial, but believe me, when the sales agent starts talking about the pink slip, you may not know how to react correctly.
So, aside from finding ahead about the best car deals automakers are offering, it will be a good idea to acquaint yourself with terms and acronyms that are typically used in the dealerships.
Car Dealership Glossary
This is not a complete car lingo dictionary, but it covers the basics.
Terms to Know When Buying a Car
1. Blue Book Value – the value of a vehicle calculated using the Kelley Blue Book pricing guide in evaluating trade-in vehicles. This highly respected guide was invented in 1926 and is a widely accepted pricing model for any vehicle.
2. Residual Value – the value of a vehicle or any other item less depreciation after some time or usage. It is the car's predicted value after usage and is commonly used in leasehold when calculating the overall cost of a lease. Residual value is set by the valuer, leasing company, or the bank when you use a vehicle as collateral and is unnegotiable.
3. ANCAP Rating – a safety rating guide denoted with 0 to 5 stars as an indication of the vehicle’s ability to avoid crashing, or in the event of a crash, the car’s ability to minimize the injury or damage. This guide was developed and published by ANCAP since 1993.
4. Trim Level or Trim Package – refers to the versions of a given model determined by the combination of features and extras to enhance performance, comfort, or luxury. As a result, the price of a vehicle varies depending on their trim level.
For example, Toyota differentiates its trim levels using acronyms CE, DX, L, LE, S, SE, SLE, SR5, VE, XL, XLE, XLS, XR, XRS, and the like. Other carmakers follow their trim-naming system.
5. Dealer Addendum Sticker – sometimes, car dealers modify or add value to the vehicle, such as fitting it with leather seats, repainting, or installing aftermarket wheels, all adding to the total cost. The dealer must inform the buyer about the extra cost in the form of a sticker on a secondary window referred to as the addendum sticker.
So, if you notice that a vehicle’s asking price is higher than the MSRP, you should confirm with the sales agent if it has any addendum sticker.
6. Destination Fee – when you purchase a vehicle from the manufacturer as a consumer or dealer, and they need to ship or deliver it to your location, the manufacturer charges a destination fee. This is the amount charged to deliver the vehicle to your address and is often not included in the quoted MSRP.
7. Driveaway – the vehicle may be delivered via different means, such as car-carrier trailer, air, or driven to the buyer’s address. This last method is called driveaway. It’s when a hired driver brings a purchased car to the buyer or a specified location. Some firms offer driveaway services and are relatively cheaper than other methods of delivery. The downside, however, is that your vehicle incurs mileage.
8. Drive Off – not to be confused with driveaway, this term refers to the total amount you have to pay when buying or leasing a vehicle to drive it off the selling yard. It is also called the Total Due at Signing. For example, when purchasing a car, you need to pay the down payment, sales tax, the doc fee, and pay for the title, which in total makes up the drive off.
9. Invoice Price – the price the car dealer pays the manufacturer for the vehicle. In many cases, the dealer usually pays less than the invoice price due to discounts from the manufacturer. As a result, the dealer may even sell the vehicle at invoice price and still make a profit.
10. Dealer Incentives – car buyers are not the only ones who enjoy discounts; the car dealers also get discounts from the manufacturers, usually during seasonal sales. The dealer incentives are then passed down to the buyers during the sales. For this reason, dealers can give significant discounts without incurring losses.
11. Document Fee – this term refers to the cost of paperwork processing. The doc fee seems like an out-of-the-blue charge to car buyers as it appears when concluding the transaction.
However, doc fee typically covers back-office work, such as registration of the vehicle, licensing, and valuation of the car in case of a trade-in, among other administrative tasks. This fee varies by state and car model and ranges from $100 to $400.
12. The Pink Slip or the Title – the document issued by the authorized body, usually the State’s Department of Motor Vehicle, as proof of ownership of the vehicle. If you buy the car through a loan, the lender holds on the title until you pay off what you owe. Similarly, for leased vehicles, the lessor retains the title until you've bought it.
13. Finance and Insurance (F&I) Office – to your convenience, most of the car dealerships have a Finance and Insurance Office where paperwork and documentation are completed and signed after the negotiations, especially if you're financing the vehicle through the dealer.
Beware of sales strategies selling you raw deals and additional products such as extended warranties and aftermarket accessories. The dealers usually introduce these suspicious packages in the F & I office.
14. Direct Financing – you don't have to finance your car through the dealer; you can choose your preferred financial institution. It means that you get the car on investment, but you will be paying the mortgage to the bank or credit union directly instead of paying to the dealer.
15. Subprime Loan – are you worried about poor credit history and a low credit score to qualify for a loan? Well, a subprime loan is here for you. It is a type of loan granted to high-risk individuals, but it imposes a much higher interest rate. Also, it requires higher down payments.
16. Under Water or Upside Down – talking of vehicle value, sometimes your vehicle loan may be more than the current value of your automobile, such as when you appraise your car's worth before clearing its loan. You refer to this situation as Upside Down or Under Water.
17. Gap Insurance – your standard insurance policy will most likely cover the replacement cost and not necessarily the actual value of the car in case of an incidence. So, if you got your car through a loan, there's usually a difference between what the insurance pays and what you owe on the vehicle. Gap Insurance covers this gap and is very attractive for cars with a high depreciation rate. However, be careful when choosing your gap insurance. Most policies, especially the dealer-sold gap insurance, are raw deals compared to what your regular insurance company may offer you.
18. Extended Warranty – The car manufacturer will give you a factory warranty referred to as the Limited Warranty. Still, some car dealers will sell you an Extended Warranty.
Extended Warranty is an optional warranty meant to potentially cover your vehicle’s repair beyond the manufacturers' warranty period. Be careful when buying this service contract as they often benefit the dealer more than the buyer or the lessee.
Acronyms to Know When Buying a Car
1. MSRP – Manufacturer’s Suggested Retail Price – the price of a car as recommended by the manufacturer to their authorized dealers. Take note, however, that the dealer can offer a higher or lower retail price.
2. APR – Annual Percentage Rate – also referred to as the Interest Rate, it is the amount you pay above your loan as interest expressed per annum.
3. Acronyms used by Toyota – L (Entry Level model); DX (Deluxe); CE (Classic Edition); LE (Luxury Edition); S (Sport); SE (Sport Edition); SLE (Sport Luxury Edition); VE (Value Edition); SR5 (Sport Rally 5-Speed); XL (Executive Luxury); XLS (Executive Luxury Sport); XLE (Executive Luxury Edition); XR (Extreme Rally); XRS (Extreme Rally Sport)
That’s a lot, I know! But don’t worry, you’ll get the hang of it, I assure you. You’ll be an expert by the time you finally decide on the car you’re buying. Meantime, enjoy the experience!
For more tips and hacks in the automotive market, whether you're improving your garage skills, looking for auto parts, or researching about a make or model, our website is the place for you. Learn more from CarPart AU!