Don’t know a term? If it has to do with auto financing… we’ve got you covered.


Acquisition Fee: The Acquisition Fee is a fee charged by a leasing company (in this case, the dealership finance department) that is typically included in the vehicle’s financing. It is usually between $300 and $600 and is rarely negotiable. It is also known as an Initiation Fee or Bank Fee.

Actual Cash Value (ACV): The ACV is the wholesale value of a vehicle.

Adjusted Capitalized Cost: This is the selling price of the vehicle, less deductions that reduce the price. These deductions include down payment, trade-in credit, non-cash credits, and rebate. The Adjusted Capitalized Cost is used to derive the base monthly payment on a vehicle loan. It is also called the Net Capitalized Cost or the Amount Financed.

Advertising Fee: The Advertising Fee (also called a promo-fee or promotion-fee) is a fee charged by dealers and is typically between one and two percent of the dealer invoice. The fee may show as a line item on the sticker or may be included in the dealer invoice price. The fee is negotiable.

Amount Financed: This is the amount of money that is borrowed by a consumer for the purpose of financing a vehicle. The Amount Financed is almost always equal to the Adjusted Capitalized Cost.

Annual Percentage Rate (APR): The APR is the actual cost of credit (interest) paid by the borrower on an annualized basis. It is expressed as a percentage such as “6.99% APR”.

As-Is Vehicle: This is a car or truck sold to a consumer that has no warranty from the dealer or any other source. Any and all repairs and maintenance on the vehicle are the responsibility of the buyer once the vehicle has legally become his or her property. Note that “As Is” must be checked in the buyer’s guide on the vehicle window at the dealership.

Auction: The Auction (also called Dealer Auction) is where dealers buy used cars in a bidding process. The dealers then resell them at retail locations.

Auto Inspection: An Auto Inspection is a full vehicle evaluation, usually by a professional for a specified fee, that helps to identify potential problems and issues with a used vehicle. Auto Inspections can also be done by non-professionals who have knowledge of vehicles mechanics.

Auto Loan Calculator: An auto loan calculator is, typically, an online tool in which a user may enter the amount, term and interest rate (per year) to get an estimate of the total cost of an auto loan.



Backend: The Backend is what dealers use to garner extra profit from additional add-ons including financing, insurance, extended warranties, and other extras.

Back Door Money: This is a hidden manufacturer rebate that is given to dealers when they sell a vehicle.

Bank Fee: See Acquisition Fee

Bad Credit Auto Loan: A bad credit auto loan or car loan for bad credit is auto financing that is extended to a consumer who has a low credit rating because of bad or negative information on his or her credit history report. Borrowers who have credit scores below approximately 660 will generally need to consider sub-prime or bad credit auto financing when purchasing a new or used vehicle.

Base Price: This is the cost of the vehicle without options. It does include any factory standard equipment as well as the factory warranty.

Black Book Value: The value of a vehicle according to the Black Book used car price guide (

Blue Book Value: The value of a vehicle according to the Kelley Blue Book used car price guide (

Borrower: The individual named as the person responsible for repaying the loan. Borrowers are rated in three categories based on their credit score: Prime (highest “quality” borrower, Sub-Prime (lower “quality” borrower), and Shafted Score (very low “quality” borrower).

Buyer’s Guide: This is a special form that the dealer provides for any vehicle the dealership is selling. The form specifies whether or not the vehicle comes with a warranty and, if it does, what that warranty covers. The Buyer’s Guide must be shown in the vehicle’s window as required by the U.S. Federal Trade Commission.



Car Dealer: A car dealer is any individual or company that sells more than a predetermined number of cars in a single year as defined by the State in which they reside (typically between four and six vehicles in a 12-month period). Car Dealers must be licensed and obey consumer protection laws and regulations, established by municipal, state and federal agencies, that apply to their business operations.

Capitalized Cost: This is the selling price of a car, warranty, insurance, coatings, or other add-ons. It is also the value of a car at the beginning of a lease (see Lease Residual Value).

Capitalized Cost Reduction: This is, effectively, anything that reduces the Capital Cost of a vehicle before the monthly payment has been calculated. This may include a trade-in credit, cash down payment, manufacturer’s rebate, etc…. Remember, manufacturer’s rebates still apply on a lease.

Certified Pre-owned Vehicle: A Certified Pre-owned Vehicle is a car or truck that has been “certified” by a dealer, or manufacturer, prior to putting it up for sale. That means that the car or truck has had a comprehensive vehicle check and should be a better, more reliable vehicle overall. These used cars are typically of higher quality than vehicles that have not been certified. They also may carry special financing rates that could save you money. Closed-end Lease: A Closed-end Lease is one that does not require the person leasing the vehicle to purchase the vehicle at the end of the lease or, pay any difference between the lease residual value and actual market value.

Commission: A commission is a payment made to a salesperson when they sell a vehicle. Most car salespersons make their money from sales commissions. There are some dealerships that do not use commissions and instead pay their salespeople a regular salary.

Credit History: See Credit Report

Credit Life Insurance: This is a life insurance policy that is taken out by a borrower. In the event that the insured borrower dies during the term of the loan, the insurance will pay off a specified amount of the loan. With regard to vehicle loans, Credit Life Insurance policies usually pay the remaining loan balance at the time of the death of the insured.

Credit Report: A person’s Credit Report is a documented record of his or her credit history. It shows all credit accounts and their balances as well as information on late payments and bankruptcy. A Credit Report is used by lenders to evaluate whether or not to lend money to a person and at what interest rate to lend that money.

Credit Score: A numerical value derived from an individual’s credit history from one of three major credit bureaus, Equifax, Experian, and TransUnion, and is used to determine the credit-worthiness of a potential borrower.

Curbstoner: This is an unlicensed used car seller who poses as a private party who is selling his or her own car. This process is illegal.



DMV: Acronym for Department of Motor Vehicles. Each State has a DMV that is responsible for Driver’s Licensing, Vehicle Registration, Vehicle Titling, and other vehicle related programs.

Dealer Installed Option: Optional equipment that is installed by the dealership rather than the manufacturer or an aftermarket installer. Dealer installed options may include undercoating, fabric protection, paint detailing, appearance accessories, performance accessories, and any other item installed by the dealer before delivery.

Dealer Invoice: This is the actual published dollar amount that is billed by the to the dealer by a manufacturer when a dealer purchases a vehicle. Note that this may not be the actual dollar amount paid by the dealer due to due to rebates, holdbacks, fees, and other dealer incentive programs.

Dealer Plate: This is a dealer-only license plate that dealers use on an unsold vehicle. It allows potential buyers to test-drive unregistered cars.

Dealer Prep/Dealer Preparation Fee: This is a typically negotiable fee that is sometimes passed onto car purchasers. The fee covers the activities done to prepare the vehicle for sale. This includes removing plastic coverings and other protective packaging items, cleaning and detailing the vehicle, adding fluids, and other similar activities.

Dealer Service Fee: A fee attached to the purchase of a car by the dealership which may or may not include any actual services provided by the dealership. Such fees are usually regarded as unnecessary and may be negotiable depending on local laws or customs.

Dealer Sticker Price: The price of a new vehicle displayed in the form of a window sticker. This is the manufacturer’s suggested retail price or MSRP which differs greatly from the dealer’s actual price or invoice price.

Default Charge: This is a fee charged to a lessee for being late on, or failing to make, a monthly car lease payment.

Deductible: The out-of-pocket expenses assumed by an individual with regard to his or her insurance policy and is usually a fixed rate based on the amount and type of coverage purchased. A high deductible is usually associated with lower monthly insurance premium payments.

Depreciation: The decrease in the value on a car based on the difference between a vehicle’s cost and residual value over it’s useful life, typically, in years.

Depreciation Charge: A periodic charge made against expense or revenue to cover the cost of a car due to its declining value over time.

Destination Charge: This is the fee charged to a dealership by the manufacturer to compensate for transporting a particular vehicle from the factory to the dealer’s location. This is a fixed fee that is not marked up by the dealer. Note that this fee is rarely (if ever) negotiable. Dealerships are charged the same destination fees, no matter where they are located in relation to the factory.

Disposition Fee: A fee due at the end of a leasing period established by a car leasing company to compensate for expenses incurred when selling, or “disposing” of, the vehicle. This fee is often waived if the vehicle is purchased by lessee.

Document Handling Charge/Document Preparation Fee: This is a fee charged for processing and handling the paperwork necessary for completing the sale of a vehicle. This fee is typically negotiable. It is also known as a “Prep Fee” or “Doc Fee”.

Down Payment: A portion of the total cost of an expensive item, such as a car, paid at the finalization of a purchase, which ensures the securing of the car loan for the balance of that item’s cost. The size of the down payment is usually agreed to by both lender and borrower, but will likely have to meet a minimum standard (a minimum percentage of the total price) established by the seller and, even, local laws or customs.



Early Termination Fee: This is a penalty assessed against a lessee for ending a lease agreement prior to the originally established end-date of that car lease. Ending a lease early should be avoided if at all possible as Early Termination Fees can be very costly.

Excess Mileage: On a rented or leased vehicle, the mileage that goes beyond limits established in the rental or leasing agreement. A charge per mile over the maximum is listed and will, typically, run from 15¢ to 20¢ per mile.

Excess Wear and Tear: At the return of a leased vehicle, if there are dents, scratches, torn carpets and seats or, otherwise, damage that has not been repaired for which the lessee is liable. Damages can only be determined if there was a vehicle inspection agreed to, and signed by, both the leasing agent and lessee, at the time of the vehicle’s leasing.

Extended Warranty: An optional warranty policy that provides coverage against specified mechanical failures and defects over a specific number of miles or by a specific period. Contrary to the name, an extended warranty does not necessarily extend the factory warranty and often acts as independent coverage. They are called “extended” warranties because the new coverage period starts after the factory warranty has expired. Extended warranties are closely related to vehicle service agreements and extended service agreements



F&I: An acronym for finance & insurance. The F&I office is where you will finalize your new vehicle purchase by working out the final paperwork with the dealership. The F&I person may assist the buyer with financing, insurance, and last minute adjustments to price.
Factory Incentive (Customer): Factory-to-consumer incentives are provided to customers by manufacturers to assist in the selling of year-end or slow-selling models. These incentives are passed on in whole to the customer in the form of rebates, cash back, or lower interest rates. Not all customers will quality for every incentive. Sometimes called a Commercial Incentive.

Factory Incentive (Dealer): Factory-to-dealer incentives are provided to dealers by manufacturers to assist selling year-end or slow-selling models. These undisclosed incentives may be passed on to the car buyer to make slow-selling models more attractive, or they may be reserved to bolster dealership profit and cash flow.

Factory Invoice: The total cost a dealer pays to the manufacturer for a car including the price of the base model, of the options available, along with destination and manufacturer fees. This invoice may also include a list of incentives for the dealer to purchase more of a particular model of car.

FICO Score: Credit score, named for a standardized credit scoring system created by Fair, Isaac & Co. established in 1956 by Bill Fair and Earl Isaac in San Rafael, CA.

Finance Charge: This is the total amount of interest that is paid over the full term of the vehicle loan



Gap Insurance: Gap insurance will insure the difference between what is owed on the vehicle and what the insurance company says the vehicles is worth in the event that the automobile is totaled in an accident or stolen and not recovered. For example, if an insurance company claims a totaled vehicle is worth $10,000 and the owner owes $15,000 then gap insurance protects the owner from having to pay the $5,000 difference out-of-pocket to settle the vehicle loan.

Gross Capitalized Cost: A price agreed to by a car dealer and buyer for a car lease including certain fees, service contracts, and insurance, which the buyer/lessee pays the dealer



Holdback: A credit the dealer receives from the manufacturer for selling a vehicle as a way to assist with dealer profitability and cash flow.
Holdback is usually 2 – 3% of MSRP or invoice. Not all manufacturers use holdback as a dealer incentive. Sometimes known as Giveback



Incentive Rate: A special interest rate offered by manufacturers to customers with excellent credit histories. Not every customer may qualify for incentive rates.

Insurance: Monetary protection extended to a person or entity by an insurance company. Leases typically require greater levels of insurance than what is required when purchasing a vehicle.

Invoice Price: The Invoice Price is the initial amount charged to the dealer by the manufacturer. This is typically higher than the dealer’s final cost due to allowances, rebates, discounts, and incentives. The Invoice Price will always include freight costs



Lease: A lease is a fixed, long-term contract under which the customer makes use of a vehicle that they do not own, but instead rent from the dealership or leasing company. The advantage of a lease is that the customer only pays for the portion of the vehicle they use.

Lease Charge: This is the cost of leasing a vehicle, less depreciation, and is based on the Money Factor. The Lease Charge is also sometimes called the Rent Charge or Implied Interest.

Lease Inception: The start of a lease agreement.

Lease Inception Fees: These are fees that are due and payable at the inception of the lease (beginning of the lease). These may include an Acquisition Fee, Security Deposit, First Month’s Payment, taxes, and/or Title Fees.

Lessee: An individual with the right of use of an item of value, such as a car, by virtue of a lease agreement with the actual owner of that item.

Lessor: One who grants the right to use of his or her property to another individual by virtue of a lease agreement.

Loss Leader: A vehicle, which is sold at a loss to draw customers to the dealership, bolster revenue, or in the hopes that the profit can be made up in financing, service, or with add-ons such as dealer-installed options.



Maintenance/Service Contract: A contract for vehicle maintenance over a predetermined span of time or miles. Service plans may cover everything from routine scheduled maintenance to full mechanical coverage similar to an extended warranty. Car buyers should carefully examine the details of any service contract before purchase to ensure the service contract will be a good value. See Extended Warranty and MSRP.

Make: The manufacturer of a car (such as Ford, Toyota, BMW, Chrysler, etc…).

Market Value: The price of an item, such as a car, in the competitive market at the time of sale or trade that a likely buyer would be willing to pay based on accurate knowledge of the item. Often used interchangeably with fair market value, though the two terms have distinct legal differences.

Mileage Allowance: A set limit of miles that can be driven in a leased or rented vehicle without additional charges applied by the leasing company. Exceeding this allowance leads to additional costs on a cents per mile basis.

Mileage Charge: An additional charge applied by a car leasing company on a per-distance basis and incurred when the mileage allowance of the leased vehicle has been exceeded.

Minimum Trade-In Allowance: The minimum guaranteed value of a vehicle if used as a trade-in toward a vehicle owned by the dealership, regardless of the condition, age, make, or model. Sometimes used in conjunction with a “push, pull, or drag it in” and other such promotions. This is NOT necessarily the retail value of a given trade-in vehicle should the vehicle be sold outright rather than traded in.

Model: The family line of a vehicle (Corolla, Magnum, 3 Series, Mustang, etc). Models may have many different trims available. See Trim Line.

Money Factor: Also known as the lease factor or lease rate, it is expressed as a decimal value which can be multiplied by 2400 to yield the approximate annual percentage rate, or APR, of the lease on a car.

Monthly Payment: An installment of money paid on a monthly basis to satisfy the obligations of a loan, lease, or rental agreement. For a car loan or lease, the payment is agreed to by both lender and borrower based on the length, or term, of the agreement, the interest rate, and the initial cost of the vehicle.

MSRP: An acronym for Manufacturer’s Suggested Retail Price. This is the retail price as determined by the manufacturer and seen on the vehicle information sticker as required by state and federal regulation which can be found in the window of every new vehicle. Optional equipment and factory-installed packages are seen as line-items on the information sticker. Sometimes called sticker price. MSRP does not include financing charges, taxes, or destination charges. Dealer-installed options may increase the price of a vehicle beyond the MSRP.



Net Trade-in Allowance: This is the amount of credit a dealer will extend toward purchase of a new(er) vehicle based on the current market value of the vehicle being traded in.

NADA Value: The value of your trade-in per the NADA (National Automobile Dealers Association) used car price guide, also called the Orange Book. See Blue Book Value.



Options: A general term which encompasses a list of equipment and incentives available for a car over and above that which would normally come with the standard model. These can include upgrades to the power-train, certain luxury items (e.g., power windows, audio systems, heated seats, etc.), and comprehensive warranty coverage to items not normally covered by standard warranties.

Option Code: All optional equipment and packages have codes that are often used to make up packages. Option codes may be listed on the new vehicle information sticker which will be found in the window of every new vehicle currently available.



Payment Protection Plan: A form of insurance that protects the borrower in the event the borrower cannot make the payments due to financial hardship or unexpected circumstances. See Credit Life Insurance.

Policy: With regard to insurance, a contract between two parties, insurer and insured, to protect against loss or damages arising from specified conditions within liability guidelines and based on the cost and type of contract agreed to and purchased.

Premium: As related to insurance, a monthly payment on an insurance policy based on the cost, the period of time covered, and level of protection offered.

Purchase Option: In a car leasing agreement, the option to purchase the leased vehicle at a specified price at the conclusion of the lease term.

Purchase Option Price: A specified price included in the terms of a car lease that includes the option to purchase the vehicle at the conclusion of the lease.



Rebate: See Factory Incentive (Customer).

Residual Value: The worth of a vehicle at the conclusion of the term of a lease based on standard depreciation, the condition of the vehicle and its marketability.

Rustproofing: A process, which slows the degradation of the metal parts of a car due to oxidation from exposure to weather, salts and other chemicals. Rustproofing agents are applied to new cars in the factory through an electro-chemical bonding process during multiple stages of construction ending with the final coat of paint.



Sales Tax: A tax assessed at the time of purchase of an item and collected directly by the seller. The rate of tax varies depending on location, current law, and the type of item purchased.

Sales Volume: The quantity of total sales in any given period, usually measured monthly, quarterly, or annually.

Security Deposit: Money paid by a lessee set apart from the cost of a car lease for compensation due to damage caused by the lessee or, otherwise incurred, while the car was in possession of the lessee.

Sticker Price: See Dealer Sticker Price.

Subsidized Lease: This is a lease that is subsidized by a vehicle manufacturer, typically offered by the automaker’s captive leasing company. This is ordinarily used to make the vehicle in question more attractive to a potential customer



Term: The number of monthly payments on an auto loan. Typical new car loans range from 24 to 84 months, with 60 months being typical. A longer term will results in a lower payment, but longer terms increase the total amount paid over the course of the term due to interest charges.

Termination Fee: In a car leasing agreement, a fee assessed by the lessor in the event the terms of the lease are broken by the lessee before the conditions of the lease agreement have been fully met. Such fees must be stipulated to in the leasing agreement by both parties for them to be enacted.

Title: The legal document that shows the ownership history of a vehicle.

Total Cost: The cost of a lease agreement, or car loan, including, not only the price the car, but all fees, costs, taxes, and interest charges.

Trade Difference: This is effective price difference between the price of the new car less the value of the Trade-In

Trade-In: Any item which is offered to receive a credit toward the purchase of a new product of the same, or similar, type. With regard to car purchases, the current market value of the vehicle can be applied toward the purchase of a new, or newer, car.

Trade-In Allowance: An amount of money taken off the sale price of a new vehicle equal to the worth of the vehicle being traded in based on its current market value.

Trade-In Value: The worth of a used vehicle at the time it will be traded toward the purchase price of new(er) vehicle based on its current market value, and condition. The trade-in value of a vehicle can be found in a number of references, most notably, Kelly Blue Book, which estimates a car’s minimum and maximum worth depending on condition.

Trim Line: The standard set of features found on a specific vehicle; not including options, special equipment, and paint. Most vehicles come in at least two trims, and some models may have many different trims.



Upside Down Loan: In this situation, the car buyer owes more money on their trade-in than car can be sold for or that the dealership is willing to offer for the trade-in. The difference is then rolled into a new loan. This is also known as being “Under Water” on a loan.

Used Car Auction: See Auction.



VIN: Vehicle Identification Number. A unique identity given to all cars when leaving the factory. This number is then recorded at the time of licensing and registration and used as a means for tracking ownership, accident statistics, and illegal activity.

Vehicle History Report: A comprehensive document recording all activity involving a particular vehicle based on the VIN of that vehicle. This includes history of ownership, repossessions, accidents and illegal activity.

Vehicle Safety Ratings: A standard evaluation of a vehicle’s road-worthiness, and passenger protection established by the National Highway Traffic Administration (NHTSA). A vehicle’s safety rating is determined by its performance in a series of tests including an array of crash simulations.



Warranty: A contract of assurance that a product will function properly within specified guidelines based upon assertions made by the seller. If the product fails to meet such guidelines, or is damaged under certain conditions, the buyer is compensated according to terms specified by the warranty.

Washed Title: A vehicle title that has had its status as a salvaged vehicle removed from the title. This occurs when a salvaged vehicle is sold in another state and issued a new title, which no longer shows that it has been classified as “salvaged” by an insurer in the car’s original location. New and late model flood-damaged cars are most often disposed of in this manner as a means to profit further on a car that has already been written off as totaled by an insurer and is considered fraud under state and federal regulations.

Wear and Tear Charges: In a car lease agreement, wear and tear charges may be applied if the car shows significant damage beyond that which existed at the moment of the car’s initial inspection and what is considered “normal” wear and tear as clearly defined by the car lease agreement



Auto Loans for People with Bad Credit

Liberty Auto Loan: Helping people with bad credit get the auto loans they need! There is a certain ease to getting credit. For credit cards, it's just a matter of filling out an application, either in print or online, and sending it in. There is also a great deal of...

read more

Bad Credit Auto Loans

Liberty Auto Loan: Bad Credit Auto Loans the Easy Way! In the world of auto loans and bad credit auto loans, labels are not applied to customers without the cold hard numbers to back them up. So when a lender identifies a client as having bad credit, there is a...

read more can help you with a bad credit car loan…

If you have credit problems, a low credit score, bankruptcy, repossessions, and other negatives on your credit report, you may not think you can get vehicle financing or a bad credit car loan. But that’s not necessarily the case. Liberty Auto Loan has a nationwide...

read more