Car dealers sometimes use words, phrases or terminology that you may not fully understand. This may or may not put you at a disadvantage when buying a vehicle. Understanding these terms will most certainly offer you some peace of mind during the process.
Using slang or inside lingo on customers isn’t a practice normally condoned by dealerships, yet it still seems to happen. Here are a few of the more common terms used and their meanings:
This is a term I really dislike. The term simply means that you owe more on your current vehicle than it’s worth as a trade-in. The trade-in value is the amount the dealer is willing to pay for your current vehicle. It’s also commonly referred to as inequity in your trade. This inequity is usually just added to your new vehicle loan. It’s a common occurrence with the long-term vehicle loans available today. You can reduce the chances of having inequity by putting more money down or financing over a shorter term.
PDI stands for pre-delivery inspection. Before a new vehicle can be sold to the public the dealership’s service department must change the vehicle from transport mode to ready-to-sell mode. They may also need to install various items not completed before transporting the vehicle to the dealership. Things like antennas and hub caps. They also check it over for deficiencies or damage.
MSRP stands for manufacturer’s suggested retail price or is sometimes referred to as the sticker price. Technically dealers could ask more or less than this amount depending on the brand and availability. However, most dealers honor this price. Added to this price would be any dealer-installed options like popular accessories. Here in the North, remote starts and necessary engine and battery heaters are also common add-ons.
Invoice refers to the amount a car dealer pays the manufacturer for a new vehicle. The difference between MSRP and invoice is the profit a dealer can make selling the vehicle. This profit would go towards paying wages and costs to run the dealership.
F&I is an abbreviation for finance and insurance. When buying a new vehicle, consumers are sent to the F&I office to finalize the details of the deal while the dealership prepares the new vehicle for customer delivery. In the F&I office, additional products and services may be offered to the consumer, such as dealer financing, extended warranties, service contracts, insurance, and more. At the end of this process, the purchase contract is finalized and signed, and then the customer drives home in his or her new vehicle.
Incentives and rebates
An incentive can be a specific amount of money that manufacturers pay to the car dealers once a deal is completed on certain vehicles. Car dealers may or may not pass this along to the customer. You can usually see what these incentives are on the manufacturer’s website. These differ from rebates which are usually given directly to the customer at the time of sale. You can usually accept the rebate in cash, or can apply the amount of the rebate to your down payment.
Documentation fees. This fee is to cover the costs of processing paperwork, doing lien searches, CarProof reports, and other costs related to completing a car deal. These fees are different at different dealerships and range for little or no cost to almost $1,000 at some dealerships.
Sub-vented interest rates
An interest rate is the amount of interest you pay on a new vehicle loan, expressed as an annual percentage rate or APR. No lenders lend money for free. All vehicle loans are subject to an APR based off of the current prime rate. Sometimes rather than offer a discount on a particular vehicle the manufacturer will offer a sub-vented or reduced interest rate instead. When you see vehicle loans offered at a low rate or sometimes zero per cent, the interest is actually being paid for by the manufacturer as an incentive for you to buy their vehicle.
What people in the car business will sometimes refer to as gap insurance is better defined as replacement cost insurance. When you purchase a new vehicle, it begins to depreciate in value because it is now a used vehicle rather than a new vehicle. As we discussed about having inequity, for the first several years at least, your vehicle may be worth less than what you currently owe. If your car was stolen, or damaged beyond repair in an accident, during this time there may be a gap between what your insurance company will pay for the vehicle and what you still owe for it. Replacement cost insurance is designed to protect you against this difference. It’s very affordable yet many people still decline to take it.
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