There are a multitude of decisions that bombard you when you step onto the lot to buy a car. There are even more confusing and twisted words to figure out and keep track of too. For the average car shopper, these terms can be difficult to understand. Some are basic, some not so much. Here is a list of the key car terms to understand when you find yourself in negotiations for your next car.


Essential Car Terms


Balloon Payment: Basically, this makes your monthly payments lower by calculating what your car would be worth after the contract term length. You pay on the lesser value and then at the very end you pay the leftover value in one payment.


Kelley Blue Book: This company is an online database of knowledge for car owners and buyers. You enter your information and the site calculates the value of your car for trade-in or resale. You can also compare prices of new and used vehicles to buy as well.


Equity: Okay, so equity is a finance term. When you take out a loan on the car you go into debt. When you go to trade your car in or sell it, the difference of what you still owe and the profit from the trade-in or sale is your equity. If you owe more to the bank than what the car is worth, we call this “upside-down” or negative equity.


MSRP: This stands for Manufacturer’s Suggested Retail Price. It’s also known as the “sticker price.” This price is not always the same as the dealership’s asking price.


Payment-to-Income Ratio (PTI): This ratio often gives dealers a cap on what they allow buyers to be approved for. It’s an established percentage of monthly income to monthly loan payment. It can be helpful to buyers to budget.


Principal: the principal is how much is owed on the car without interest.


Rebate: Yay discounts. These help bring buyers and help dealerships sell cars. Sometimes they want to get rid of a particular model, and sometimes they just want to acquire new buyers. Either way, a discount is a discount.


Acquisition Fee: You may see this as an added on fee upon purchase. This covers the cost of paperwork and document processing for the dealership to sell. Sometimes these can be negotiable, but other times not so much. Overall, they aren’t huge dents in the overall payment.

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