Car Buying Tips

Car Buying Glossary

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AMORTIZATION: Reducing a debt by making payments in installments.

ANNUAL PERCENTAGE RATE (APR): Interest cost of a loan calculated on a yearly basis.

APPRAISED VALUE: In leasing, the current value of a vehicle at the time of appraisal. Appraised value is important if a vehicle is stolen or at the end of the lease term.

BALLOON PAYMENT: A final lump sum payment made at the end of a finance contract. The lump sum payment must be disclosed at the time of the sale.

BUMPER-TO-BUMPER WARRANTY: Warranty that includes almost every part of the vehicle from the front bumper to the rear bumper. Check your warranty manual for a list of covered items.

CLOSED END LEASE: In a closed end lease the lessee is NOT obligated to buy the vehicle. NOTE: Some closed end leases offer lessees a purchase option at the end of the lease term, either for a pre-specified amount (residual) or fair market value.

DEMONSTRATOR ("DEMO"): Vehicle used by a manufacturer, dealer, or distributor primarily for demonstration purposes.

DEPRECIATION: Reduction in a vehicle’s value due to age and normal wear and tear.

GAP INSURANCE: Insurance covering the difference between what is owed on a retail or lease contract and the value of the vehicle upon its loss or destruction.

GROSS CAPITALIZED COST: The total selling price of the vehicle (i.e., negotiated selling price plus optional equipment, extended warranties, etc.). Also referred to as “cap cost”.

LEASE TERM: Length of lease.

LESSEE: Consumer leasing a vehicle from a lessor.

LESSOR: Owner (bank or leasing company) of the leased vehicle.

MANUFACTURER'S SUGGESTED RETAIL PRICE (MSRP): Price at which a manufacturer "suggests" a dealer sell a specific vehicle. Customer cost may be higher or lower, depending on market conditions.

NEGATIVE EQUITY ("UP-SIDE DOWN"): Owing more than a vehicle is worth.

REGULATION "M" (TRUTH IN LEASING ACT): If a dealer is arranging a lease for a customer, the dealer must show the terms to the customer BEFORE the customer signs the lease agreement. If the customer does not accept the terms, the customer is entitled to cancel the contract and receive a refund of their deposit.

REGULATION "Z" (TRUTH IN LENDING ACT): If a dealer is arranging financing for a customer, the dealer must show the financial terms to the customer BEFORE the customer signs the finance agreement. If the customer does not accept the terms, they are entitled to cancel the contract and receive a refund of their deposit.

RENT CHARGE: In a lease contract, the amount similar to the interest or finance charge on a loan or credit agreement.

RESIDUAL VALUE: Predicted value of the vehicle established at the beginning of the lease.