Car Buyer’s Lingo: Terms to Know Before Buying a Car


Dec 04th, 2019

Car Buyer’s Lingo: Terms to Know Before Buying a Car

Every market has its language include the automotive market, and it is best to be acquainted with at least the basics before venturing into the market. An understanding of the jargon may seem like a non-issue until you are in the market bombarded with words you have never heard before, much less understand. Below are basic terms you should know to get the best car-deal when buying a car, new or used.

1. MSRP - Manufacturer’s Suggested Retail Price is the amount the car manufacturer recommends their authorized dealer to sell a given vehicle model. Take note that the dealer can charge more or less the retail price. 

2. Blue Book Value - this is 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.

3. Residual Value - is the value of the vehicle or any other item that depreciates after some time or after 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. 

4. ANCAP Rating - this 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. The more the stars, the higher the ranking across the various ANCAP tests. 

5. Trim Level or trim package – refers to the versions of a given vehicle model determined by the set or a combination of extra features incorporated for better performance, comfort, or luxury. As a result, the price of the same model vehicles 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.

[Meaning of the acronyms:- 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]

6. 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, which all add 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. As a result, if a vehicle’s asking price appears higher than the MSRP, it is advisable to confirm first if it has any addendum sticker or to ask the sales agent.

7. Destination Fee - when you purchase a vehicle from the manufacturer as a consumer or dealer, usually it has to be shipped or delivered to your location. Destination Fee is the amount charged to deliver the vehicle to your address and is often not included in the quoted MSRP. The farther the delivery, the higher the destination cost.

8. Driveaway - the vehicle may be delivered via different means, such as by car-carrier trailer, by air, or driven to the buyer. Driveaway refers to the practice of bringing a car to the buyer or specified location through a hired driver. Some firms offer driveaway services and are relatively cheaper than other methods of delivery. The downside, however, is that your vehicle incurs mileage.

9. Drive Off - not to be confused with driveaway, drive off is the total amount you have to part with when buying or leasing a vehicle to drive it off the selling yard. It is called the Total Due at Signing. For example, when purchasing a car, you have to pay the down payment, sales tax, the doc fee, and pay for the title, which in total makes up the drive off.

10. 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.

11. 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.  

12. 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.

13. The Pink Slip or the Title - is 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.

14. 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. Be aware of sales tactics to sell 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. 

15. Direct Financing - you don't have to finance your car through the dealer. The majority of the dealers offer different financing methods, and you can go for 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. 

16. 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. 

17. APR or Annual Percentage Rate – also referred to as the Interest Rate, it is the amount you pay above your loan as interest expressed per annum.

18. 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. 

19. 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.

20. Extended Warranty - I am sure you expect some warranty when you buy a machine and more so for a vehicle. Well, you have to be careful not to get more than what you need. 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.

The above glossary of automotive terms contains some of the commonly-used jargon in the selling and buying of vehicles. Familiarising yourself with the language can save you from rogue car dealers taking advantage of your innocence. For more tips and hacks in the automotive market, whether you're improving your garage skills, looking for auto parts, or researching about a particular make or model, our website is the place for you. Learn more from!