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Car Shopping Terms

Confused about some of the terms you hear when you go shopping for a new car?  Read the following definitions to help you become an informed car buyer:

  • Base Invoice Price is the initial price the manufacturer charges the dealer for a car. This price includes standard equipment, factory warranty and freight but does not include options, destination and delivery charges. Dealers often pay less than invoice price because of rebates, allowances, discounts, and incentive awards from manufacturers.
  • Credit insurance will pay off your loan should you die or become disabled. Before you buy it, examine your coverage under existing insurance policies. You cannot be forced to purchase credit insurance in order to secure a loan.
  • Conditional delivery is a sale in which the dealer allows you, the buyer, to take possession of the vehicle before financing is approved. The sale is not “final” until the lender approves your financing. In such transactions, liability, collision and comprehensive insurance on the vehicle is covered by the dealer’s insurance policy until financing is approved and the dealer has executed the manufacturer’s certificate of origin or the certificate of title. If financing cannot be arranged, you may be asked to immediately return the vehicle to the dealership. If you refuse to return the vehicle, the dealership can come and get it back from you. If the dealer takes the vehicle back, you are entitled to a refund of any money you put down on the vehicle and any trade-in vehicle that you may have had.
  • Dealer Sticker Price is the Monroney sticker price plus any dealer-installed options such as additional dealer markup, undercoating and dealer preparation.
  • Documentary fee is the fee a dealer charges for processing the paperwork involved in the sale. This fee is negotiable.
  • Extended warranties normally cover major drive train parts (engine, transmission, transaxle, etc.) at an extra charge. Some warranties require the owner pay an additional deductible for this warranty work. Carefully weigh the benefits and costs of this type of added protection before you agree to buy it, and be skeptical of offers to extend your warranty when your original warranty is about to expire.
  • Gap insurance is insurance that may help you bridge the gap between what the insurance company is willing to pay if your vehicle is totaled and what you may still owe to the finance company. It typically comes into play when you have purchased a car for no money or very little money down. If the automobile insurance company doesn’t pay the amount that the GAP company claims to be the value of the car, then GAP may not pay under some contracts. Some GAP contracts only pay up to a certain amount over the value of the vehicle. This is why it is important to carefully review any policies to ensure that the terms of the offered gap insurance are what you need. You are not required to purchase the GAP insurance offered by the dealership or the financer of the auto loan.
  • Manufacturers Suggested Retail Price (MSRP) is the price that the manufacturer suggests that the dealer charge for the car. It is higher than the base invoice price
  • Monroney Sticker Price shows the base MSRP, the manufacturer’s options, the manufacturer’s transportation charge and the fuel economy (miles per gallon). Only the purchaser may remove this label, which is required by federal law.
  • Packages. These may include paint treatment, fabric finish, undercoating, etc. Make sure to weigh these options because they can be expensive and will increase your monthly payment. Don’t let high pressure salesmen talk you into paying for an expensive package you don’t want or need.
  • Service contracts and “wrap around” warranties are offered by manufacturers and warranty companies to cover repairs for a longer period than the manufacturer’s warranty. These policies DO NOT cover all mechanical repairs and generally problems due to normal “wear and tear” are not covered. On new cars, the coverage usually begins at the same time the manufacturer’s warranty goes into effect (not after it expires, as some consumers may expect.) So the only part of the coverage that is useful is whatever time remains on the policy after the manufacturer’s warranty expires. Whether you are buying a new car or a used car, make sure you understand when a service contract begins (and ends) before you consider purchasing the coverage. It’s a good idea to find out exactly what is covered and weigh the costs and benefits before you decide to buy it.