Definitions of the below terms are not meant to be full legal descriptions of those terms. Consult your own legal counsel for a more complete description of those terms.

 

 

 

 

 

 

 

 
Commonly Used Terms Within
The Motor Vehicle Industry
A
Actual Cash Value [ ACV ] -
Also known as market value. Represents the dollar amount a seller could expect to receive for the sale of a vehicle if it is sold in the marketplace. Equal to the replacement cost minus any depreciation.
     
Annual Percentage Rate [ APR ] -
The total cost of credit to the consumer expressed as an annual percentage of the amount of credit granted. APR is intended to make it easier to compare lenders and loan options. Lenders are required to disclose the APR before the loan (or credit application) is finalized.
   
Approval -
Extension of credit to a buyer by a financial source for the purchase of a vehicle.
     
Auto Insurance Coverage -
Bodily Injury Liability
Covers other people's bodily injuries or death for an accident in which you are responsible.
   
Collision
Covers damage to your vehicle hits or is hit by another vehicle or object.
   
Comprehensive
Covers damage to your vehicle in case of theft, vandalism, flood, fire or animals. (Each individual policy coverage may vary slightly.)
   
Medical Payments
Covers medical expenses to you and your passengers injured in an accident. Does NOT matter who is at fault.
   
Property Damage
Covers other person's property for an accident in which you are responsible.
   
Uninsured / Underinsured Motorist
Covers damage to your body and vehicle for which another person is responsible but the negligent driver does not carry insurance or the liability carried by the negligent driver is not sufficient to cover the damages.
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B
Balloon Payment -
A final payment that is substantially greater than the preceding equal monthly installment payments.
     
Basic Warranty -
Issued by the manufacturer for specific terms and mileage periods. Covers all factory installed parts, excluding wear items, against defects and poor workmanship.
   
Bill Of Sale -
A formal document used to transfer vehicle title from one owner to another.
     
Binder -
Temporary insurance coverage which is provided to a buyer of a vehicle pending issuance of a policy of insurance on the vehicle.
   
Bumper To Bumper Warranty -
A comprehensive warranty that covers all parts of a vehicle that may fail due to defects or poor workmanship.
   
Buyer's Guide -

Required by the FTC to be posted in every used car they offer for sale. Anyone who sells less than six cars a year doesn't have to post a Buyers Guide.

The Buyers Guide must tell you:

  • whether the vehicle is being sold "as is" or with a warranty;
  • what percentage of the repair costs a dealer will pay under the warranty;
  • that spoken promises are difficult to enforce;
  • to get all promises in writing;
  • to keep the Buyers Guide for reference after the sale;
  • the major mechanical and electrical systems on the car, including some of the major problems you should look out for; and
  • to ask to have the car inspected by an independent mechanic before you buy.

When you buy a used car from a dealer, get the original Buyers Guide that was posted in the vehicle, or a copy. The Guide must reflect any negotiated changes in warranty coverage. It also becomes part of your sales contract and overrides any contrary provisions. For example, if the Buyers Guide says the car comes with a warranty and the contract says the car is sold "as is," the dealer must give you the warranty described in the Guide.
 
Buyer's Order -
A non-binding written document between a dealer and the customer which fully describes a specific vehicle and the final selling price.
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C
Captive Import -
A vehicle sold within the USA but manufactured outside of the USA or Canada.
   
Cash Difference -
Also known as trade difference. The cost of the vehicle that a customer is buying minus the estimated value of the customer's trade in.
     
Certificate Of Title -
Ownership evidence of a vehicle that is issued by the state.
     
Closed End Lease -
A lease for which the amount representing the residual value of the equipment at the end of the lease is mutually agreed upon within the lease. The lessee is not responsible for depreciation greater than anticipated.
   
Conditional Sales Contract -
A legally binding written document of a financed sale of a vehicle. It retains the title of the vehicle by the lender until the vehicle is paid for.
   
Consequential Damage -
Damage caused to a warranted part due to failure of an uncovered part causing the warranted part not to be covered by the manufacturer warranty.
   
Consumer Leasing Act -
States that certain lease information must be provided when advertising a vehicle lease and before completing a lease with a consumer. (Regulation M)
     
Credit Accident and Health Insurance
-
Insurance which makes payments on a credit transaction when the insured borrower is unable to work due to a disability such as an accident or a health problem.
     
Credit Bureau Investigation -

When a dealer requests a buyer's credit history from one of the major credit reporting agencies.
     
Credit Life Insurance -
Insurance which pays the gross or net amount of the credit transaction owed at the time of death of the insured borrower(s).
   
Single Covers the life of a single debtor in the transaction. The amount of insurance decreases as the balance of the credit transaction is reduced.
   
Joint Covers the life of two debtors in the transaction. The amount of insurance decreases as the balance of the credit transaction is reduced.
   
Level Term
Covers single pay credit transactions and the amount does not decrease with the balance of the credit transaction.
     
Credit Statement -
A form that contains the buyer's personal history, credit history and current transaction details. This form is submitted to the financing source.
   
Customer Satisfaction Index -
A dealer's customer service score. High score means high satisfaction, low score means poor satisfaction.
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D
Dealer Agreement -
A signed contract between the dealer and the financing source which states the terms and conditions under which the financing source will extend credit to the dealer's finance customers.
   
Dealer Auction -
An auction in which participants must be state licensed automobile dealers (new or used).
   
Dealer Demonstrator -
An untitled vehicle which was driven by dealership personnel will qualify for first owner rights under warranty when sold but the warranty period begins when the vehicle was first put into service by the dealership.
     
Debt-To-Income Ratio
 -

A comparison between what a buyer owes and what he/she earns every month. (monthly debt payments ÷ monthly income = debt-to-income ratio) It is used to determine a buyer's capacity to borrow additional funds. Acceptable ratios vary from lender to lender but a very general guideline is:
   
  10% or less Excellent
  11% to 20% Acceptable
  21% to 35% Overextended
  36% or higher Dangerous
     
Deductible -
A predetermined amount on an insurance policy, warranty or vehicle service contract which the buyer must pay to repair the vehicle.
     
Default -
When a buyer fails to meet the specified terms of a contract.
     
Deficiency -
The balance still owed by the buyer after his/her vehicle has been repossessed and sold and the proceeds from the sale have been applied to his/her account.
     
Deposit -
Buyer's money which is held by the dealer to hold a vehicle until the paperwork is completed. The deposit is then credited toward the down payment.
     
Depreciation -
A decrease in the value of property.
   
Destination Charges -
The cost of shipping a vehicle from the factory (or port of entry for import autos) to the dealership.
     
Direct Loan -
A loan made between a buyer and a finance source that does not involve the dealership finance department.
     
Document Fees -
Also known as doc fees. A fee which is passed on to a buyer when purchasing a vehicle to cover the cost of handling various forms and paperwork associated with the sale of the vehicle.
     
Down Payment -
Cash or net trade in made as partial payment by buyer at the time of vehicle purchase.
   
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E
Equal Credit Opportunity Act -
Ensures that all consumers are given an equal chance to obtain credit. Creditors cannot deny credit because of sex, marital status, age, race, national origin, or because of public assistance income.
     
Excess Mileage Charge -
Charge for each mile driven over the allowable annual mileage on a leased vehicle.
     
Excess Wear & Tear Provision -
Part of a lease agreement which defines what is more than normal wear and tear on a leased vehicle which the lessee must pay to repair.
     
Extended Warranty
-
An extension of the manufacturer basic warranty. Purchased by the owner of a vehicle and is good for a specific period of time and mileage. Also known as a vehicle service contract.
   
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F
Factory Installed -
Optional equipment which is installed on a vehicle by the manufacturer before it leave the plant. This optional equipment is included in the window sticker price of the vehicle.
     
Factory Invoice Price -
The amount a dealer pays the manufacturer for a vehicle.
     
Factory Warranty -
A period of time in which all repairs and defects are automatically corrected by the manufacturer at no or limited cost to the buyer.
   
Fair Credit Report Act -
Promotes accuracy, fairness, and the privacy of personal information assembled by Credit Reporting Agencies. A consumer must agree before a credit report can be pulled.
   
Federal Bankruptcy Act -
Gives a dealer 20 days from the date of possession for the security interest to be perfected. If the dealer fails to perfect within this time limit and the customer files for bankruptcy within 90 days of the sale, the bankruptcy trustee then is entitled to a superior lien of the vehicle.
   
Federal Truth In Mileage Act -
Requires all odometer disclosures to be made on all states' title documents and imposes record keeping to create a paper trail of odometer readings from previous owners.
     
First Owner -
The person or company which becomes the first registered owner of a vehicle.
   
Form 8300 -
A form which is used to report cash and certain cash combination transactions of $10,000 or more to the IRS.
   
FTC Credit Practices Rule -
A dealer must provide a written disclosure statement for a cosigner's signature before the cosigner signs an installment agreement.
   
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G
Gap Insurance -
Insurance protection that will pay the difference between what one would owe on a vehicle and what an insurance company says it's worth.
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I
Implied Warranties -

A contract law term for certain assurances that are presumed to be made in the sale of products, due to the circumstances of the sale. These assurances are characterized as warranties irrespective of whether the seller has expressly promised them verbally or in writing.
They include:

  • an implied warranty of fitness for a particular purpose (if a seller knows or has reason to know of a particular purpose for which some item is being purchased by the buyer, the seller is guaranteeing that the item is fit for that particular purpose) and
  • an implied warranty of merchantability for products (merchant is guaranteeing that the goods are reasonably fit for the general purpose for which they are sold).
   
Import -
A vehicle sold within the USA but manufactured outside of the USA or Canada. Also known as a captive import.
     
Installment Sales Contract -
A credit contract which is signed by the buyer agreeing to specified monthly payments for a specified time period.
 
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J
JD Power CSI Survey -
Consumer Satisfaction Index compiled by JD Power and Associates. This study rates dealer service satisfaction, product quality and overall vehicle ownership satisfaction.
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K
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L
Late Charge -
A charge which is added to a past due account.
     
Lease Term -
The number of scheduled months of a lease.
   
Lemon Law -
[Magnuson-Moss Warranty Act] State laws which help protect consumers of automobiles that repeatedly fail to meet certain standards of quality and performance. These laws vary from state to state and may or may not cover used or leased vehicles.
     
Lender -
A financial institution which finances the buyer's purchase from the dealer.
     
Lessee -
A person who leases a vehicle from its owner.
     
Lessor -
The owner of a vehicle who rents it to another party (lessee).
     
Lienholder -
A financial institution which holds a contract title as collateral for funds advanced to purchase a vehicle.
     
List Price -
The manufacturer suggested retail price plus the price of the dealer installed options.
     
Loaner Car -
Alternate transportation from the manufacturer or dealership when warranty work is being performed.
     
Loan Value -
The amount a lender is willing to loan a borrower for a particular vehicle.
   
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M
Manufacturer's Suggested Retail Price [ MSRP ] -
The price at which the manufacturer recommends that the dealer sell a particular vehicle.
   
Mega Dealer -
A dealer who owns several dealerships.
     
Manufacturer's Statement of Origin [ M.S.O.] -
A new vehicle certificate which is submitted to the local DMV in exchange for a title of ownership
   
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N
Negative Equity -
Also known as upside-down. When a buyer owes more on his/her trade in than the current value of the vehicle.
     
Net Trade Allowance -
The amount given by a dealer for a trade in vehicle minus the outstanding balance owed on that vehicle.
   
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O
Off Lease -
A vehicle that is for sale which was previously leased.
     
Open End Lease -
A lease for which the lessee must pay any difference between the residual value of the equipment agreed upon within the lease and the fair market value, if lower, of the equipment at the end of the lease. The lessee is responsible for depreciation greater than anticipated.
   
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P
Past Due -
A payment which has not been met on or before the due date.
   
Power Of Attorney -
A legal authority to enter into a binding contract on behalf of a second party.
     
Prepaid Account -
A borrower's account which is paid in full before the final maturity date.
   
Prepayment Charge -
An amount deducted from a refund due to a buyer when he/she prepays an account.
     
Purchase Price -
The final amount paid for a vehicle including optional equipment, warranties, destination charges. Does not include tax, title and license.
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R
Rebate -
Cash back to a buyer from the manufacturer or dealer which is used as an incentive for the buyer to purchase a vehicle.
     
Recall -
A request which is made by the manufacturer or the National Highway Traffic Safety Administration [NHTSA] to return a vehicle to the dealership or a mechanic for repairs.
     
Reconditioning -
Restoring or improving the appearance of a vehicle.
     
Refinance -
Paying off an existing loan with the proceeds from a new loan.
   
Registration -
Vehicle ownership paperwork which in on file with the state government.
   
Repossession -
When a finance source or dealer takes back possession of a vehicle because of non-payment or default on terms of the installment sales contract.
     
Residual Value -
The remaining value of a leased auto at the end of the lease term
     
Rule of 78s -
A method used by a lender to calculate an interest rebate on a loan that is paid off, or refinanced, prior to its maturity, or for accruing earned discount.
   
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S
Spot Delivery -
When the dealer assumes the buyer will be approved for financing at agreed terms and allows the customer to take immediate possession of a vehicle.
   
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T
Title Application -
Legal document used to register a vehicle with the state licensing agency.
     
Trade Allowance -
The amount a dealer will give to a buyer for a trade in.
   
Trade Difference -
List price minus trade allowance.
     
Trade In -
A used vehicle that a buyer will be trading as partial payment toward the purchase of a dealer's vehicle.
     
Truth In Leasing Act -
Requires clear and full disclosure of all lease terms and conditions when advertising and when doing a lease contract.
   
Truth In Lending Act -
Requires dealer and lenders to make clear and full disclosure of all costs when advertising credit terms and when doing a credit transaction.
   
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U
Uncovered Repairs -

Repairs which are not covered by the basic warranty. These may include but are not limited to:

  • normal maintenance items such as oil change, coolant, and tune up;
  • items which are covered under another warranty such as tires;
  • result of misuse or accident;
  • result of any kind of modification;
  • result of an act of natural such as flood or hail; or
  • result of improper maintenance or neglect.
     
Used Car Guide Books -
Guides that are used by automotive dealers and others in the automotive industry to help determine the value of a vehicle. Vehicles are valued by make, model, year, mileage, condition and optional equipment.
     
Usage Tax -
A separate tax that is charged on some leased vehicles in some sates.
   
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V
Vehicle Identification Number [ VIN ] -
A standardized identification system which is used by all manufacturers on vehicles sold in the USA consisting of 17 unique numbers and/or letters. The country of origin, manufacturer, model year and manufacturing plant, can be identified by the placement of each letter or number.
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W
Warranty Transfer -

The transfer of an existing warranty from one vehicle owner to another. The new owner should notify the manufacturer of the ownership change in case there might be a factory recall.
Warranty Transfer Fee -
A dollar amount that some manufacturers charge to transfer a warranty.
   
Wholesale -
When a vehicle is sold to a retailer or at an auction instead of being put on a lot for retail sale.
     
Wholesale Value -
The value placed on a vehicle in its present condition.
     
Written Warranty -
A written promise by a dealer to a buyer in connection to the sale of a vehicle. Addresses the condition of the vehicle and it's ability to meet a specific level of performance for a specified period of time.
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