Car Buying Terms to Know


acquisition fee: A processing fee that involves a dealer’s cost to look up credit reports, verify insurance, and perform other research necessary to ensure that you can afford to buy or lease a vehicle


APR: Stands for “annual percentage rate”; the annual interest rate a lender charges you to borrow their money


base price: The bare-bones retail cost of a vehicle, without any additional options or fees


Blue Book value: A vehicle’s worth, based on the longstanding and widely trusted Kelley Blue Book automobile buying guide


dealer incentives: Dealership-specific specials that encourage the sale of specific makes or models of vehicles


dealer invoice price: The monetary amount that a dealership actually pays for a vehicle


dealer preparation fee: Extra costs associated with getting a vehicle ready for sale after it arrives at the dealership from the manufacturer; includes removal of any protective wrapping, installation of accessories such as license plate frames and antennas, road testing, and washing


depreciation: The decrease in a vehicle’s market value over time and declining condition


destination and delivery charges: The cost of getting a vehicle from the manufacturer’s facility to the dealership


direct financing: A loan that is done directly through a bank or credit union, rather than through a dealership


disposition fee: The cost for processing a returned car at the end of a lease


documentation fee: A fee assessed by a dealership to cover the handling of paperwork in the car-buying process


down payment: An up-front payment from a buyer that reduces the amount borrowed to purchase a vehicle


early termination fee: A predetermined amount that a person leasing a car (the lessee) must pay if they return a leased vehicle before the contracted end date


extended service contract: Add-on repair coverage that goes into effect when the manufacturer’s standard warranty term ends


lease: A fixed, long-term contract that involves renting a vehicle from a dealership and paying for the portion of the vehicle that you use


market value: A used vehicle’s current worth


model: The specific vehicle name within a make (e.g., Toyota: Corolla, Camry, 4Runner, etc.)


MSRP: Stands for “manufacturer’s suggested retail price”; may differ from the pricing that a dealer sets for that vehicle


purchase option: The option to buy a vehicle at the end of a lease or loan, with pricing based on the vehicle’s miles and condition


security deposit: A deposit required as a safeguard in some lease contracts to cover potential missed payments


term: The number of months that payments are required to satisfy an auto loan or lease


top-tier credit: The highest class of possible credit scores; typically required to get a lender’s lowest advertised interest rate


total due at signing: The actual amount required for the lessee to take possession of a vehicle


trade-in value: The dollar amount that a dealer will pay for your vehicle


trim level: The specific version of a vehicle model, differentiated by standard equipment and available options; ranges from a base trim with minimal features to a top level with the most features