Car Loan Terms Used By Dealerships
If you are
planning on purchasing a new or used car
from a dealership, you need to familiarize
yourself with some of the 'dealership'
jargon that is going to be used. Not knowing
what these terms mean will show that you are
not an educate consumer, likely resulting in
you paying more than you should for your car
In addition to
the terms below, we offer a more
car loan glossary.
- This interest is added on to the principal
of the car loan in the beginning. So, if you
pay your loan off early, this interest is
still going to be have to paid back.
- This is the price of a car that is build
with only standard equipment and does not
have any options. The base price includes a
- An industry guide for consumers and
dealers as to what the wholesale and retail
values are for new and used cars.
holdback - Allows the dealer to
still make profit, while selling a car below
retail price. Manufacturer's usually allow a
holdback between 2 - 3%.
incentives - Motivations offered by
manufacturers, through the dealers. These
enticements are supposed to tempt consumers
into buying slow-selling makes and models of
preparation charges - This type of
charge is bogus. You are not obligated to
pay any preparation fees for your new or
used car purchase. This a way that dealers
make extra money from unsuspecting buyers.
Destination charge - This is a
obligatory fee and is passed on to the buyer
by the dealer without any markup. Meaning,
the dealers are not supposed to make any
money from the destination fee. The fee
covers the cost to transport the car from
the manufacturer to the dealership.
contract or Extended warranty - A
warranty that will cover any necessary
repairs that occur within a certain time
frame from purchase. Most likely, the dealer
will offer you a warranty when purchasing
your new car. It is a good idea to buy a
warranty. You never know if you the car you
are buying will wind up being a lemon.
price - This is the price that car
manufacturer's charge dealers for the cars
that they produce. This is not the final
cost that the dealers pay because they
receive dealer rebates and incentives. The
destination charge, otherwise known as the
freight charge, is always included in the
sticker price - Exhibits the base
price of the car as well as the
manufacture's suggested retail price. This
sticker also shows all of the installed
options of the car as well as car's fuel
economy and what the destination charge is.
Warranty - Offers protection for
certain parts, for a pre-specified amount of
mileage and time.
- A discount offered to buyers to help
Rule of 78
- A formula used in calculating what you
owe when you pay-off your pre-computed car
loan early. Any loan that utilizes this type
of formula should be avoided. You can learn
more about the Rule of
value - The amount the dealership
will offer you for your old car. The sum
they offer you can be used as a credit
towards the price of your new car purchase.
You should check out the
Book value of your car before you go to
the dealership to trade-in your car.
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