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Terms to Know When Buying or Leasing a Vehicle
Sometimes, shopping for a new car, whether you are buying or leasing, can be intimidating because of all the fancy financial terms used by dealerships to negotiate, lease, and sell vehicles. It can seem like you need to learn an entirely new language in order to communicate effectively. Don't worry – here's a basic list of terminology that can help you to better understand to car-buying or -leasing process.
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  • Annual Percentage Rate (APR): Also called the finance rate, this is the interest rate on the monthly payments you make towards your car loan.
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  • Acquisition Fee: This refers to any additional upfront cost you pay when leasing a vehicle. Dealerships use the fee to cover to cost of processing.
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  • Capitalization Cost: The total cost of a vehicle. The capitalization cost is used to calculate how much your monthly payments towards a leased car would be.
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  • Cap Cost Reduction: This is the money you pay up front that will be used to reduce your monthly payments when leasing a car, similar to a down payment on a purchased vehicle.
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  • Depreciation: The difference between the capitalization cost and the residual value – basically, what you owe on a leased car, total.
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  • Down Payment: The amount of money you are willing to pay upfront when purchasing a new car. The more money you put down, the less your monthly payments will be.
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  • Lease Term: A specific period of time that you are permitted use of a leased car. Negotiated through contract, this typically lasts between 12 to 24 months.
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  • Manufacturer's Suggested Retail Price (MSRP): This is a guideline or “sticker” price suggested by the vehicle's manufacturer. Dealerships may or may not charge more than this amount.
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  • Monthly Payment: The amount of money paid towards your car loan every month.
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  • Quoted Dealer Price: How much the dealership wants to charge you for a specific vehicle. May be more than the MSRP.
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  • Residual Value: An estimate of how much your leased car will be worth after your lease term is over. Dealerships use this to calculate your monthly payments.
- + Disclaimers