New Car Buying 101: Common Terms

Looking for a new car? Here is a list of useful terms to remember when shopping around.

MSRP: Retail price of a vehicle suggested by the manufacturer. This is not the price you HAVE to pay for a vehicle.

2nd Sticker: Dealers refer to this as “market adjustment” but it’s really just a way to get the negotiations started at a higher cost to the customer. You should NEVER pay this inflated price for a vehicle!

O.A.C. “On approval of credit” Usually posted in the fine print on and ads that display a special, low interest rate.

Beacon Score: Your individual credit score that partially determines the finance/interest rate you may qualify for. You should know what your credit history looks like. Some dealers may say your credit is worse than it really is just so they can overcharge you for the interest rate and make more profit at your expense.

Term: The number of monthly payments on a loan. Auto loans range from 24-84 months. Some dealers may show you a lower payment but making the loan for a longer term. This is a common “trick” to make you think you are getting a better deal. Longer terms may lower the payment, but usually increase the total you pay over the entire term.

Rate: The percentage of the loan charged to the purchaser by the lender.

Finance Charge: the total amount of interest charged over the term of the loan. It is important to know the finance charge when deciding which loan option is best. Finance charge plus the total amount you finance equals the REAL cost of the vehicle.

Incentive Rate: a special interest rate (0%, 1.9% etc.) offered by the manufacturer. Incentive rates are offered O.A.C. to those with high beacon/credit scores. Sometimes different factors, such as cash down payment may help a buyer with a lower credit score qualify for these special interest rates. Always ask your sales consultant to show you all your options.

Rebate: An amount of money offered by the manufacturer to help lower your cost. Most rebates have restrictions and not all buyers will qualify. The dealership should always tell you if an advertised price includes rebates and what type of buyer qualifies for those rebates. Your price may be higher if you do not qualify for a given rebate.

Loss Leader: A vehicle chosen by a dealership to be advertised and sold at a loss in order to draw a large number of customers to the dealership.

Negative Equity: Also referred to as “upside down” or “buried”. This is a common situation that occurs when you owe more to the lender than your trade is actually worth.

We hope you find these terms and definitions useful. If you have anything else please add them in the comments section.