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  3. Car Shopping: Terms You May Encounter

Car Shopping: Terms You May Encounter

Person saving money in their piggy bank
Person saving money in their piggy bank

Although it can be exciting, car shopping can be a time-consuming experience. The multitude of options and unfamiliar jargon can quickly overwhelm even the savviest buyers. To help alleviate some of the stress with car shopping, we've compiled a handy guide to decode the common terms you're likely to encounter. So, before you hit the car lot, arm yourself with the knowledge and confidence that will come from our breakdown of car shopping lingo.

General Buying Terms

Blue Book Value

Also known as the Kelley Blue Book Value, it's a widely used reference for determining the value of a car. The Blue Book estimates trade-in and retail values based on factors such as make, model, year, condition, and mileage.

Buy Here Pay Here (BHPH)

A term often found in the used car market that means the dealer and lender are the same entity. BHPH dealers work with people who have had credit problems in the past and generally have trouble obtaining financing through traditional channels, such as banks and credit unions.

Certified Pre-Owned (CPO)

When a car is certified pre-owned (CPO), it has undergone a thorough inspection and meets specific criteria set by the manufacturer or dealer. CPO cars often come with extended warranties and other benefits, making them a popular choice for buyers looking for added peace of mind.

Depreciation

The decrease in a vehicle's value over time due to factors such as age, mileage, condition, and market demand. It's an important consideration for both new and used car buyers, as it can affect resale value.

Fair Market Value

This is the price at which a seller is willing to sell, and a buyer is willing to buy, assuming both parties have reasonable knowledge of the relevant facts and neither is pressured to complete the transaction.

Trade-In

Buyers can offer their current vehicle as part of the payment for a new or used vehicle, with the trade-in value deducted from the new vehicle's purchase price.

Lease

A lease allows a consumer to use a vehicle for a set period in exchange for monthly payments. Unlike a loan, in which the buyer owns the vehicle at the end of the term, leasing typically involves returning the car to the dealer unless there's an option to purchase it.

Loan and Financing Terms

Financing

Financing is the process of obtaining a loan to purchase a car. Buyers can borrow money through banks, credit unions, or dealership financing departments, with terms and interest rates varying based on credit history and loan duration.

Pre-qualify

The process of determining whether a potential borrower is eligible for a loan and the maximum amount they can borrow. Pre-qualifying factors are typically based on basic financial information provided by the borrower.

Credit Score

A numerical representation of an individual's creditworthiness based on payment history, credit utilization, length of credit history, types of credit, and new credit accounts.

FICO Score

A FICO score is a credit score developed by the Fair Isaac Corporation and commonly used by lenders to assess the risk of lending money to a borrower. FICO scores range from 300 to 850, with higher scores indicating lower credit risk.

Down Payment

The initial payment made by the buyer when obtaining financing to purchase a car. It's typically a percentage of the total purchase price and is paid upfront, with the remaining balance financed through a loan. The typical down payment for a car is between 10% and 20% of the purchase price.

Annual Percentage Rate (APR)

The annual percentage rate represents the interest rate charged on a loan over the course of a year, including fees and other costs associated with borrowing money.

Principal

The principal is the original amount of money borrowed in a loan, excluding interest and other charges. It's the amount the borrower agrees to repay the lender over time.

Paperwork Terms

Lien

In car buying terms, a lien is a legal claim against a vehicle that serves as collateral for a loan. Liens give lenders the right to repossess cars when borrowers fail to make loan payments as agreed.

Title

A title is a legal document that establishes ownership of a vehicle. It includes information like the vehicle identification number (VIN), owner's name, and any liens or encumbrances on the car.

Warranty

A guarantee the manufacturer or dealer provides that covers certain repairs and defects for a specified period. Warranties can vary in duration and coverage. At Oak Motors, we offer a 36 mo/36k mi powertrain warranty on all of our vehicles, so it's essential to understand the terms and conditions before purchasing a vehicle.

Armed with these definitions, you're now ready to confidently tackle the car-buying process. Whether you're negotiating financing terms, or assessing the value of a trade-in, understanding these terms will empower you to make informed decisions and drive away in the best vehicle for you. As always, if you have questions, feel free to drop us a line!

Categories: Buying Information
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