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Glossary * - New Car Buying
* All Glossary defined terms will be found throughout the website in quotation marks (“ “).
Alpha CBA – “Deal Summary (DS)” – a FREE summary worksheet to be used by any customer who wants to do all of their own research. The report compares researched new vehicle pricing, “Trade-In”, financing and “F&I Product” information with the data that was provided by your two chosen dealerships.
Alpha CBA – “Expert Buyer Report (EBR)” – a customized report created by Alpha CBA that summarizes the key information for your particular vehicle choice. The report includes new vehicle pricing, “Rebate” and “Rate Incentive” (major and minor), competitor and “Trade-In” information as well as “F&I Product” recommendations for your specific situation. Level 2 memberships include one customized report and Level 3 memberships include two customized reports.
Alpha CBA – “Phone or Skype Consultation” – a personalized service which allows upgraded members the ability to have a Skype or phone call directly with one of our Alpha CBA experts. We will walk you through your completed “EBR”, the vehicle purchasing process and answer questions while you sit in the comfort of your own home. Level 2 memberships include one 30-minute call and Level 3 memberships include two 30-minute calls.
Alpha CBA – “In-Person Dealership Consultation” – a personalized service which allows upgraded Level 3 members the ability to have an Alpha CBA expert with them at the dealership during a deal. We will guide you through the entire process once you have decided upon the exact vehicle that you are ready to purchase or “Lease”. Level 3 memberships include one 120-minute in-person consultation service.
“Annual Percentage Rate (APR)” – the annual effective interest rate charged to a borrower under a loan. You can also calculate the “Lease” equivalent interest rate given a “Money Factor” by using the following formula: “APR” = “Money Factor” * 2400
“Bank Fees” – fees charged by a lender for each processed loan or “Lease” transaction.
“Break-Even Amount” – the amount at which selling your current vehicle outright and trading it in to the selling dealership are equal after adjusting for the sales tax benefit of a “Trade-In” on your purchase. If you can negotiate a higher than “Break-Even Amount”, you are generally better off trading in your vehicle.
“Capitalized Cost Reduction” – items such as “Rebates”, “Rate Incentives”, “Trade-In” credits or cash down payments which reduce the cost of a “Lease”.
“Certified Pre-Owned (CPO)” – a type of late-model used car that has been inspected, refurbished and certified by a manufacturer or other certifying authority. These vehicles usually include an “Extended Warranty” and may also include special financing or other benefits.
“Close-End Lease” – also known as a walk-away “Lease”, is a contract that provides the lessee with an option to buy the vehicle at the end of the “Term” for a predetermined “Residual Value” amount. The lessee is not required to purchase the vehicle, but may be charged a disposition fee when the vehicle is turned-in to the dealership. Most new car “Lease” contracts involving consumers are of this type.
“Credit Score” – a measure of credit risk based on a standardized formula using factors such late payments, absence of credit references, and unfavorable credit card use in one’s past. Most lenders will use your FICO credit score to determine your credit worthiness in order to set your “APR”. Obtain a free credit report by using one of the free services found on our Resources page.
“Dealer Cash” – a monetary incentive offered from the manufacturer to the dealer that is not disclosed to the consumer.
“Dealer Reserve” – a kickback that dealers receive for setting up financing.
“Dealer’s Actual Cost” – the direct cost actually incurred by a dealer for a vehicle. The amount is calculated as follows: “Dealer’s Actual Cost” = “Invoice Price” – “Dealer Cash” – “Holdback”
“Depreciation Fee” – the portion of a “Lease” payment that accounts for the reduction in vehicle value during the “Term”. It is calculated using the difference between the vehicle’s list price and its projected “Residual Value”. “Depreciation Fee” = (“Net Capitalized Cost” – “Residual Value”) ÷ “Term”
“Extended Warranty (EW)” – plans also known as vehicle service agreements (VSA), vehicle service contracts (VSC), or mechanical breakdown insurance (MBI) policies that cover the costs associated with certain mechanical or electrical component repairs, including parts and labor, occurring after a manufacturer’s warranty expires.
“F&I Products” – Finance and Insurance Department products such as “EW”, “GAP”, “PPM”, “T&W” and “OFIP” plans or services offered by the dealer at time of financing for an additional charge. “F&I Products” also include “Dealer Reserve” up-charges and other dealer-purchased insurance products.
“Finance Fees” – the interest-like portion of your “Lease” payment that is paid to the leasing company for use of their money. “Finance Fee” = (“Net Capitalized Cost” + “Residual Value”) × “Money Factor”
“Gross Capitalized Cost” – the agreed upon price of the vehicle and any other items you pay over the “Term” of the “Lease” (such as “EW”, purchased insurance, acquisition fees, other fees and any outstanding prior credit or “Lease” balances).
“Guaranteed Asset Protection (GAP)” – plans that cover the difference between the asset value of a vehicle and the amount covered by an insurance policy in the event it is damaged beyond repair (total loss) or stolen. Some “GAP” plans may also cover your insurance deductible. Several financing companies and “Lease” contracts require “GAP”.
“Hassle Factor” – a value to account for the time and energy needed to sell your vehicle outright. This amount includes dealing with many potential buyers, the hassle of scheduling multiple showings, haggling over price and being without a vehicle until a new one is purchased in addition to the credit risks of the buyer.
“Holdback” – a set discount that the dealer receives from the manufacturer when a new vehicle is purchased. The amount can be worth several hundred dollars or 2-5% of the “MSRP”.
“Invoice Price” – the price a dealer pays to the manufacturer for a vehicle before any other incentives are applied.
“Lease” – a contract that provides for possession or use of an asset for an agreed-upon period of time in return for compensation.
“Lease Charge” – also known as “Rent Charge”, is the sum of all “Finance Fees” charged over the “Term” of a “Lease”.
“Loan Pay-Off” – the amount that you will actually have to pay to satisfy the terms of your auto loan in order to fully pay off your debt. This amount may also include accrued interest, other fees and possibly even a pre-payment penalty. Contact your lender for this amount and for additional details on your specific loan.
“Manufacturers Suggested Retail Price (MSRP)” – the listed price that can be found on the window sticker of every new vehicle.
“Minimum Drive-Off Fees” – the initial amount usually required by lenders at the start of a “Lease”. The amount includes the first payment, license, dealer and “Bank Fees”.
“Money Factor” – also known as Lease Rate, is the interest rate used to determine the “Monthly Lease Payment” amount. “Money Factor” = “APR” / 2400
“Monthly Lease Payment” – monthly amount paid to a leasing company during the “Term” of a “Lease”.
“Negative Equity” – occurs when the value of a vehicle used for “Trade-In” is less than the outstanding balance on its loan.
“Net Capitalized Cost” – refers to the price of a leased vehicle after subtracting out “Capital Cost Reduction” items. This amount usually includes a sales tax component as well as all other fees.
“Open-End Lease” – is a contract that produces additional financial obligations on the lessee at the end of the “Term”. The lessee may be required to purchase the vehicle or make a set amount of payments to the lessor in order to satisfy the contract. The lessee may also be responsible for additional maintenance expenses. Most new car “Lease” contracts involving consumers are not of this type.
“Other F&I Products (OFIP)” – plans for a variety of categories including:
- Add-Ons – window tint, nitrogen in tires, rust proofing, undercoating and interior stain protection plans
- Appearance – dent & ding, paint and fabric plans
- Auto Security – alarm system, theft and satellite vehicle locator plans
- Credit – a variety of plans including those covering life, disability, involuntary unemployment, property and leave-of-absence events
- Emergency Roadside Assistance – towing, flat tire, fuel and jump start assistance plans
- Key Fob Replacement – lost or stolen key fob plans
- “Lease” Waivers – wear & tear and over-mileage plans
- Powertrain Only – engine, transmission and drive axle plans
- Windshield – damaged windshield plans
“Payment Packing” – the practice of adding an extra amount to a monthly payment quote in order to leave room for “F&I Products”.
“Pre-Paid Maintenance (PPM)” – plans that cover future engine oil & filter changes, lubrications and inspection services. Some plans also cover future tire rotations. Many manufacturers already include “PPM” type services as part of the new vehicle purchase.
“Rate Incentive” – an interest rate incentive that is offered by the manufacturer to discount the “APR” charged on a loan from a manufacturer-selected bank. Utilize the “Rebate” or “Rate Incentive” calculator to find out which is the best option for your deal.
“Rebate” – a monetary incentive offered by the manufacturer that can be used by the consumer as a down payment or refunded back to the consumer after the purchase of a new vehicle via check. Utilize the “Rebate” or “Rate Incentive” calculator to find out which is the best option for your deal.
“Rent Charge” – see definition for “Lease Charge” above.
“Residual Value” – expected value of a vehicle at the end of the “Lease”. It is calculated as a percentage of “MSRP” and is in almost all cases non-negotiable.
“Tire & Wheel (T&W)” – plans that cover the costs of repairing or replacing your vehicle’s tires and/or rims due to damage from road hazards.
“Term” – duration in months for the “Lease” or loan.
“Vehicle Purchasing Service (VPS)” –
- Car Broker – a limited but personal car buying service that helps find a specific vehicle for a customer from a dealer or auction at an agreed upon price. The service usually does not include other items such as “Trade-In” or assistance with financing.
- Car Buying Services – a service offered by some employers, credit unions or other membership groups for its customers to buy a new vehicle at a pre-determined price. The buyer however must handle all other aspects of the deal on their own.
- Car Negotiator – a limited but personal car buying service that offers website, email or phone assistance to help a buyer with their new vehicle purchase. A negotiator may solicit offers from dealers on behalf of the customer and provide some recommendations on other items such as “Trade-In”, but the customer must handle a great deal of the purchasing process on their own.
- Car Buying Concierge – a full-service personal car buying service that usually includes an initial evaluation, recommendations, negotiation help, “Trade-In” & financing assistance and even in-person dealership visits.
“Personal Car Shopper” – a mid-level personal car buying service that usually includes recommendations, negotiation help and “Trade-In” & financing assistance.