15 Must Know Auto Terms

Don’t be tricked by the dealers! Know the language auto dealers use and get pre-approved before you shop to get the best deal on your next vehicle purchase.

1. Add-on interest
   Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early. Heritage Credit Union does not set up loans this way.

2. Base price
   The cost of a car without options. This price includes standard equipment and the manufacturer’s warranty and is printed on the Monroney sticker (placed on the car window).

3. Buy rate
   Dealers will try to get you to finance your vehicle with them for their benefit. The dealer will obtain a loan for you from various lenders at a certain rate. The dealer will then increase the rate quoted from the lender to as much as they think you will pay and keep the difference. Many times the dealer also receives a commission from the finance company.

4. Dealer holdback
   An allowance, usually between 2% and 3% of manufacturer’s suggested retail price, that manufacturers provide to dealers. A holdback allowance may allow the dealer to pay the manufacturer less than the invoice price. A buyer could obtain a car below invoice price and the dealer would still make a profit.

5. Dealer incentives
   Programs offered by manufacturers to increase the sales of slow-selling models or to reduce excess inventories. Dealers may elect to pass on the savings to the buyer.

6. Dealer preparation charges
   Additional charge that dealers try to impose on buyers. It represents pure profit for the dealers, who have already been paid by the manufacturer for the cost of preparing the car for sale.

7. Destination charge
   The fee charged for transporting the vehicle to the dealer from the manufacturer or port of entry. This charge is to be passed on to the buyer without any markup.

8. Extended Warranties
   Extended warranty or service contract covers certain car repairs or problems after the manufacturer’s or dealer’s warranty expires. Extended warranties are sold by car manufacturers, dealers and independent companies. Heritage Credit Union offers warranties with the same coverage at a fraction of the price of the dealers.

9. Invoice price
   The manufacturer’s initial charge to the dealer. The price may not be the dealer’s final cost because dealers receive rebates and other incentives from the manufacturer. The invoice price always includes freight, also known as the destination charge.

10. Monroney sticker or Dealer sticker price
    The sticker on the car window that shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price, 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.

11. Pre-approval
    Getting approved for the financing of your new vehicle at your financial institution before you start shopping. This will give you confidence knowing how much you can afford and the negotiating power to get the best deal possible. Get pre-approved for your next vehicle at Heritage Credit Union before you hit the dealers.

12. Prepayment penalty
    A lender’s charge to the borrower for paying off the loan before the end of the term. Heritage Credit Union does not charge prepayment penalties.

13. 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. When offered a choice between taking the rebate or receiving 0% financing - take the rebate. Your monthly payments will be lower and you could save hundreds of dollars over the life of the loan.

14. Title
    A legal document containing specific information about the vehicle. The title is the official proof of ownership and is used to transfer ownership from one person to another.

15. 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.

When you are ready to buy a new vehicle, come to Heritage Credit Union first.
We can help you with the financing and make sure you get the best deal.