Car Buying Terms to Know



active safety features: Semi-autonomous equipment that aids drivers on the road and by alerting them to obstacles in their path; some of these technologically advanced features will automatically brake or steer the vehicle to avoid the obstacle.


available equipment: This refers to a feature or piece of equipment for a vehicle that is not included as standard on the least expensive version but may be standard on a higher-priced version of that same model. Also refers to optional features that can be added individually for a set cost.


continuously variable transmission (CVT): A type of gearless transmission that automatically changes gear ratios seamlessly  and continuously to achieve top engine power and efficiency. The technology was developed for improved fuel economy and emissions over traditional automatic transmissions.


dealer incentives: Special offers that automakers create for dealers which are then passed on to buyers.


depreciation: The loss of value a vehicle goes through as it ages and/or declines in condition.


disposition fee: A set amount charged to a lessee by the financing company at lease end to cover the costs of preparing the vehicle for resale.


documentation fee: A charge paid by the buyer to cover the cost of processing the paperwork involved in the sale a vehicle.


early termination fee: A penalty charged to the lessee when a lease is ended prematurely.


extended warranty: Coverage for certain services and repairs when the factory warranty has expired.


facelift: A relatively minor update to a vehicle’s design for a new model year in the midst of a model generation.


factory incentives: These are usually found as cash-back rebate offers or low-loan interest rates from the automaker directly to the buyer. These are requested during the negotiation process.


GAP insurance: Insurance that extends beyond your collision insurance policy; GAP is an acronym for guaranteed asset protection. Since insurance policies only cover the replacement costs of a vehicle and not its actual value, there can be a “gap” between the total amount owed and what insurance pays for.


generation: The lifecycle of a design for a specific make and model; “all-new” or “redesigned” models mark the start of new automotive generations, where the vehicle clearly looks different from the previous year’s edition and may have major changes under the hood as well.


lessee: The individual leasing a car.


lessor: The financing company or bank that loans out the money for a lease.


manufacturer’s suggested retail price (MSRP): The recommended price made by the automaker; dealers may charge more or less than this amount.


package: A bundle of features (usually found on upper-level trims) that can be added to lower-level trims for an additional price.


powertrain: Comprises of the main components that generate a vehicle’s power, such as the engine, transmission, and drivetrain.


principal: The amount borrowed when financing a car.


redesigned: Also known as all-new. This refers to a new model-year vehicle that is markedly changed from the previous model year, with major updates in areas such as body style, powertrains, equipment packages, and cabin design/materials. Redesigned vehicles mark the start of new model generations.


rebate: A partial refund on a new-car purchase. These can either be deducted from the purchase price or refunded after the sale is completed.


residual value: The remaining value on a depreciating vehicle. This is commonly used to predict the value of a vehicle when a lease comes to an end.


segment: The particular class of vehicle (e.g., three-row SUV, compact sedan, full-sized pickup truck, etc.).


subprime loan: A type of loan offered to those with poor credit. These come with higher interest rates than a typical loan and will require larger down payments to be made.


torque: The amount of “turning power” (within the engine’s flywheel), and therefore acceleration power, that a car has from a standstill.


trim level: A specific version of a given vehicle. Nearly all vehicles come in a variety of trim levels. The lower ones come with basic equipment while the higher ones have more amenities and upgrades.


upside-down: When more money is owed on a vehicle than it’s worth. You’ll find this if the car has been totaled or sold before the end of a loan’s term.