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Kelley Blue Book
The best-known of
the car pricing guides. The company was founded by Les Kelley, a California
used car dealer. The first edition was introduced in 1926. Today's editions
have listings for more than 10,000 cars, vans and trucks. www.kbb.com
Lease
An
agreement, usually for two to five years, that allows the lessee to drive a
car for the term of the lease, but the lessee does not own the car. A monthly
lease payment is usually lower than a car loan because the lessee is paying
only for depreciation on the car plus charges. The lessee is usually
responsible for repairs, maintenance and insurance on the vehicle.
Lease extension
The continuation of an existing lease, at the original
monthly payment, usually on a month-by-month basis.
Lease-like loan
Also known as payment saver loan. It combines features of a lease and
a conventional auto loan and is most often offered by credit unions. Payments
can be as much as 30 percent less than a conventional amortized loan, because
a lease-like loan has a big balloon payment at the end. (See amortization.)
Requires no down payment or security deposit. Mileage allowance is usually
higher at 18,000 miles per year. At the end of the loan, the borrower can sell
or trade in the car and pay off the loan balance, or keep the car and
refinance the amount owed, or return the car to the lender as payment for the
balance.
Lien
The
finance company's security interest in your vehicle.
Lessee
The person
who signs the lease for the vehicle. You!
Lessor
The person
who grants the lease. The financing company!
Mileage
allowance or mileage limitation
The number of miles, specified in a lease, that a car may be driven
over the life of the lease.
Mileage charge
Extra charges the lessee must pay if the car is driven over the
lease's mileage allowance, usually 12,000 to 15,000 miles per year.
Money factor
A leasing term that expresses the cost of borrowing. It is similar to
the interest rate paid on a conventional car loan, but it is expressed as a
difficult-to-understand fraction. To convert the money factor to a
recognizable interest rate, multiply it by 24. For example, a money factor of
.00345 x 24 = 9 percent interest. The money factor is negotiable, and
consumers who lease a new car should look for a money factor close to the
current interest rate charged for new car loans.
Monroney sticker
The sticker on the car window that shows the base price, the
manufacturer's installed options with the manufacturer's suggested retail
price (MSRP), the manufacturer's destination charge, and the car's fuel
economy (mileage). This label is required by federal law and it is only
removed when the car is sold by the purchaser. Named after A.S. "Mike"
Monroney, a longtime Oklahoma congressman who wrote the Automobile Information
Disclosure Act.
Mop and glow
A
term used inside the car industry to refer to add-ons, especially paint
sealant, that do little to add to the value of a car, but a great deal to add
to the dealer's profit.
MSRP
Stands for
Manufacturer's Suggested Retail Price. It represents the manufacturer's
recommended selling price for a vehicle and each of its options.
National Automobile Dealers Association A trade organization
that publishes the NADA Official Used Car Guide, which provides retail prices
for most used cars to consumers, and provides trade-in values in a
confidential list to dealers
.
National Vehicle Leasing
Association
A trade group for automotive leasing
companies that can provide direction on understanding leasing contracts and
terms.
Negative equity financing
Financing for new car buyers who owe more on their trade-in
than the car is worth. Financial advisors say at least 30 percent of cars
traded in have a negative equity balance. For example, if the outstanding
balance on a car loan is $14,000, but the trade-in allowance is only $12,000,
the loan is "upside-down" by $2,000. New federal regulations that went into
effect Oct. 1 make it clearer to consumers through the lease paperwork when
they have negative equity. Under the new rules, a space for negative equity
appears on the new finance contract and $2,000 would be added to the finance
amount of the new auto loan. See also upside-down.
Open-end lease
Sometimes called a finance lease. It usually offers lower payments,
but carries a risk for the consumer. Under an open-end lease, the lessee must
pay any difference between the residual value of the car as stated in the
lease and the fair market value of the car, if lower, at the end of the lease.
The lessor pays for the appraisal that sets the value. If the consumer doesn't
agree with it, the consumer may pay for a binding, independent appraisal by
someone agreed to by both parties. Because the lessee is taking on the risk of
having to come up with this extra payment, the payments are lower than for a
closed-end lease.
Options
Also
known as add-ons. These are features added to the car often by the dealer such
as a CD stereo, anti-theft system, detailing and undercoating. Some items are
purely decorative, known as "mop and glow," and do not add any value to the
car.
Payment saver loan
See lease-like loan.
Pink Slip
A
vehicle's title certificate.
Preparation charges See dealer preparation.
Principal
In a
standard auto loan, the amount financed, which is due on a certain date and
usually paid off through an amortized loan. Also see amortization.
Purchase option
The terms of a lease under which amount that the lessee may
pay the lessor at the end of the lease to purchase the vehicle. The price the
lessee will pay is usually the residual value.
Rebate
A
manufacturer's reduction on the price of the car as an incentive to buyers.
Rebates appeal to people with no credit or less-than-perfect credit who cannot
qualify for the lowest rate loan. A rebate may also appeal to first time
buyers who don't have a lot of cash for a down payment or another car to trade
in.
Reconditioning reserve
Another name for the security deposit paid when leasing a
vehicle.
Repossession
The situation where a lender takes physical possession of a vehicle
due to default.
Residual value
The amount agreed upon to represent the value of the car at the end of
a lease.
Rule of 78
A
type of financing where the loan is weighted so all of the interest is paid
off in the first year.
Security deposit
Sometimes called reconditioning reserve. An amount, often the same as
one month's payment, the dealer holds to be sure that the car will be returned
in good condition. It is to be returned, less fees and damage charges, at the
end of the lease.
Service contract
See extended warranty.
Simple interest loan
A method of allocating the monthly payment between interest
and principal. The interest charged is determined by the unpaid principal
balance on the loan, the interest rate, and the number of days since the last
payment. The rest of the payment goes to the principal. Making early payments
or additional payments will reduce the loan's principal and cut the total
interest paid over the life of the loan.
Sticker price
This shows the base price, the manufacturer's installed options with
the manufacturer's suggested retail price (MSRP), the manufacturer's
destination charge and the fuel economy (mileage). It is the Monroney label
affixed to the car window and is required by federal law. The label may not be
removed by anyone other than the purchaser.
Term
The length of
the loan or lease, usually 24, 36, 48 or 60 months.
Title
The written
evidence that proves the right of ownership of a specific vehicle.
Trade-in value
The amount that the dealership will credit you for the vehicle you
provide as partial or full payment for another vehicle. Amount credited is
frequently about 5 percent below the wholesale value of the vehicle.
Up-front costs
The costs that must be paid at the time of signing a car lease
agreement. These can include the first month's payment, a refundable security
deposit, a capitalized cost reduction or down payment, taxes, registration and
other fees.
Upside down
A position that consumers find themselves in when the outstanding
balance of an auto loan is higher than the current fair market value of the
car. It is most common in the early years of a lease or loan, when car is
depreciating rapidly but the balance owed remains very high. Also see
depreciation.
VIN (Vehicle
Identification Number)
A number assigned to the
vehicle by the manufacturer. Each number is unique and appears on the
vehicle's registration and title.
Walk-away lease
See closed-end lease.
Warranty
A
guarantee, from a dealer or a manufacturer, that a vehicle will perform as
expected or specified. A warranty usually covers specified mechanical problems
for a set number of miles or amount of time.
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