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Acquisition Fee

An acquisition fee is an upfront fee paid to the dealership when you buy or lease a car. Part of the down payment, this fee is paid to select the property and to originate the loan or lease. It may also be called a “bank” fee or “assignment” fee. It is actually set by the loan company or lease company, and is non-negotiable – although some dealerships do get kickbacks from the acquisition fees they collect. You can expect the acquisition fee to run you at least a few hundred dollars, if not over a thousand depending on the auto in question and on your location.

Add-Ons

Add-ons, as the name suggests, are features or items that are added onto your car as extras when you buy or lease the vehicle. A GPS, alarm system, or anti-theft device is considered to be an example of a common add-on. These enticements might be offered promotionally with car purchases to tempt buyers, or might be added to the price of the vehicle. When I bought my car in 2007, it came with a free LoJack antitheft system installed – that’s my personal example of vehicular add-ons.

Advanced Payment Offer Rate Reduction

As you might have gathered from the name, an advanced payment offer rate reduction is offered when a buyer puts down the entire cost of a lease up-front, versus paying it over the life of the lease. Paying up front versus in installments will get you a fairly significant discount. Of course, if you are able to do that, you might as well just buy a car with cash and own it outright!

Amount Due at Lease Signing

This is another fairly self-explanatory term. The amount due at lease signing is that due before a customer may take delivery of the car that they have leased. It is a total figure inclusive of all fees (like the title fee, the registration costs, and the security deposit), and monthly payments made up-front, and the down payment. Dealerships eager to sign leases might offer promotions for a set figure due at lease signing that is lower than it would normally be.

Amount Financed

The amount financed is a figure representing the total amount that a borrower will have to repay for a vehicle, inclusive of everything that is rolled into the monthly payment. The extended warranty will be included in the amount financed if one is purchased, along with pretty much everything that is not paid up front. The amount financed broken up into a number of payments correlating with the term length of the lease or loan. You should always look at the amount financed when you consider what’s within your budget for buying or leasing a car, and not just the sticker price. The former is generally quite a bit higher, and absolutely more accurate in terms of what you are actually paying for a vehicle.

Annual Percentage Rate

The APR is a figure that tells you what you are paying for credit… namely, your auto loan. This rate represents a yearly figure, hence the word “annual” in the term. Fees and costs paid to acquire the loan are both calculated into the APR, the rate of which is figured out by taking the average compound rate of interest over the lifetime of the loan. One percentage point might not seem like a big deal when you are comparing the APRs offered to you by competing lenders, but trust me when I say that every TENTH of a percentage point is a big deal! These little numbers translate to major cash, so you should never take them for granted or overlook them.

Application Fee

The application fee is what’s charged by the lender to handle the paperwork that constitutes your application for an auto loan or lease. The cost of the application fee will vary widely between dealerships, but does not count for a major portion of your car’s costs overall. The application will include the personal information about you that the bank needs to make a determination as to whether you are a good candidate for a loan.

Appreciation

This economics term applies to an increase in the value of an item. It is rarely used in terms of cars, since none but the most collectible and rare vehicles will do anything but lose money (depreciate) from the moment that you drive them off the lot.

As-Is Condition

Exercise a healthy dose of caveat emptor when you see these words. A car sold in as-is condition carries no warranties against defect or malfunction. The car is being sold in its current state – dings, mechanical problems, cosmetic condition and all. Obviously private auto sales are implied to be sold in this state, but you’ll want to really use caution if you see these terms in a dealership’s auto contract. Once an as-is contract is signed by you, you become the owner… no matter what happens next.

Auto Insurance Score

An auto insurance score is a proprietary type of credit scoring used by auto insurers when figuring out how expensive your policy with them will be. Information in a consumer’s credit file determines the cost of their auto insurance policy, much in the same way that it determines whether or not a buyer will be approved for a car loan or lease and how much it will cost. Poor credit almost always translates to a higher auto premium; that’s just the way that it is.

Balloon Contract

A balloon contract is one to approach with caution, when talking auto loans. Although balloon contracts are written in multiple areas of the financial world in terms of multiple interval-based lump sum payments, when we talk about car loans we almost always consider that a balloon payment will be made at the end of the contract. These contracts include smaller monthly payments through the life of the contract, with a large lump-sum “balloon” payment due at the end. There are a few benefits to doing it this way. First of all, the initial down payment on the loan is generally smaller when a balloon payment will be made. Also, this type of contract is generally associated with a lower interest rate and, as I said already, smaller monthly payments. If you have meticulous control of your finances and absolutely know that you will be able to save up the money for the balloon payment, then this kind of contract can make sense. You can take the money that you might pay into monthly payments that are higher as well as the money you’ll save with a lower interest rate and save/invest those funds. An expected inheritance, dividend, or tax refund might all be earmarked for a balloon payment. Of course, unless you can be absolutely certain that you’ll pay the balloon, it’s a terrible idea. Balloon contracts are becoming more common than they were previously, as lenders gain more confidence in their lending and use.

Some lenders will allow borrowers to convert their original balloon loan into something more traditional as the time for the final payment draws near. It will mean refinancing the remainder of your loan at a much higher rate, and it might not even be an option. But this is one thing to consider. On the whole, however, they really are quite risky. This is especially true for first-time buyers who don’t have much experience with the reality of making regular payments on a car loan or lease.

Balloon Payment

A balloon payment is the final payment at the end of a balloon contract. It is the final principal payment required to end the loan, and is based on the loan amount and a rate of amortization that doesn’t provide for full repayment during the loan or lease term. To give a quick example, a ten thousand dollar car with a three-year lease term might have two percent amortization every month and have a balloon payment of two thousand eight hundred dollars due on month thirty-seven, to end the lease.

Best OEM Finance Rate

This rate is the best one that can be offered by the car manufacturer on their products. Domestic manufacturers in the United States have been offering knockout OEM finance rates for the past few years, owning to the terrible state of the American car industry. These are almost always promotional rates that will give way to a higher rate of interest after the teaser period has worn off.

Bilateral Contract

This is a legal term for a certain kind of contract that auto loan contracts just so happen to be. A bilateral contract is one in which a buyer agrees to trade money for the property offered by a seller, as opposed to the trade or property for property.

Bill Of Sale

A bill of sale is a legal document spelling out the terms of a valid transfer of property. When a car is sold, just like any other major purchase, a bill of sale is written out. In retail stores, a bill of sale comes in the form of a receipt from the register. In terms of car sales, the bill of sale is a very important document containing a lot of information that certifies you as the owner of your new vehicle. The bill of sale is generally also used by state agencies to determine the tax value of a car or truck. The completion of the bill of sale is an important step in competing a car purchase.

Blue Book

This is shorthand in the auto industry for the Kelley Blue Book, a pricing guide for almost all makes and models of vehicles on the road today. This guide is the industrywide beacon for the valuation of both new and used vehicles, which are graded on an objective scale of “Excellent,” “Good,” “Fair,” and “Poor.” You can pick up a KBB guide at pretty much any bookstore, but you can also visit the site for free on the World Wide Web and get a sense of what your car is worth for the purpose of trade-in or sale. The KBB lists different values for vehicles based on whether they are being sold privately or traded in.

Blue-Ribbon Condition

This is a common auto industry term for a car that is brand-new and looks it, although the Kelley Blue Book term “excellent” is the technical standard. There is some level of subjectivity to all these terms, although you can assume that a car described to be in this condition will be absolutely pristine.

Bodily Injury Liability

This is a term having to do with auto insurance, and bodily injury coverage. This is the part of your auto insurance policy that will pay out in the instance that another driver or a pedestrian is hurt if you cause an accident. Medical expenses and loss of wages are both covered under this section of an auto policy. The minimum amount of bodily injury coverage that you must carry will vary based on the state in which you live. In my state it’s $10,000/$20,000. You can certainly carry more, however – and you really should, to best protect yourself and your family against any potential losses. Bodily injury is a required type of insurance for all drivers.

Bonus Cash

Bonus cash is given to a consumer by either the dealership or the car manufacturer as a perk for buying a vehicle. Is effectively lowers the purchase price of the car. Since bonus cash can be stacked with other incentives, this is a pretty juicy deal for the discriminating consumer! Bonus cash is not always available with leasing options.

Bonus Credit

A bonus credit is a fleet incentive that is applied as a discount to the pre-tax selling price of an automobile meant to be used as a fleet vehicle. Like bonus cash, it is a stackable credit.

Book Value

This is the value of a car based on several factors: its condition, and add-ons, and its make/model. Depreciation is also factored into the book value of a car. There are several price guides that give the book value for pretty much any car out there, but the industry standard is definitely the Kelley Blue Book (KBB).