Terms You Need to Know Before You Buy Your Next Car

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Terms for Loans

According to an article in Time, car dealerships make about 50 percent of their profits from financing. That means you better know what you’re talking about when you start talking about payment options.

Know these terms so you can tell the difference between good and bad deals:

APR – Annual Percentage Rate. Don’t mistake “APR” for “interest rate.” It is actually the interest rate multiplied by the number of periods in a year. For instance, if you have a 5 percent interest rate calculated quarterly, your APR is 20 percent.

Four-square worksheet – This is a term few people outside of the dealership know. It refers to a worksheet that helps the salesperson keep track of negotiations. Each square on the sheetlets her make notes on your trade-in, down payment, monthly payments, and price of the vehicle.

Term – Your loan’s term tells you how long it will take to repay the loan. The term is usually expressed in months. The longer-term you choose, the lower your monthly payments. But most lenders charge higher interest for longer terms.

Terms for Dealership Fees

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Dealer prep fees – Dealer prep fees are charges that get added to a vehicle’s price. They might charge you for storage, transport, and undercoating. These charges are negotiable, so set aside some time to discuss them with the seller.

Destination charge – The fee for transporting a vehicle from the manufacturer to the dealership. Most dealerships try to tack this fee onto invoices.

Documentation fee – Fees the dealership charges for processing your paperwork. If the dealership tries to charge more than $100 for this, you should definitely negotiate for a lower price.

Terms for Leases

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Early termination fee – A penalty charged for returning a vehicle before your lease has expired. A dealership can even charge this fee if you terminate the lease because someone steals the vehicle. Gap insurance can usually protect you from theft liability.

Equity lease – A lease that requires you to purchase the vehicle at the end of the agreement.

Residual value – A car’s value at the end of a lease.

Terms for Insurance

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Gap insurance – Gap insurance from AutoInsruance.us covers the vehicle’s value minus the amount of money you have paid on the lease or loan. This protects you from financial liability when a car is lost, stolen, or totaled before the end of your lease or loan term.

Upside down – Upside down describes a vehicle that is worth less than the amount you still have to pay before you own it. This happens often because vehicles lose value quickly during the first few years of ownership.

Buying a new car can feel like stepping into an alternate universe where everyone speaks a slight variation in English. Have you encountered other terms you didn’t understand?

Resources

http://www.caranddriver.com/reviews/car-buying-terms-glossary-buyers-info