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Auto Finance Dictionary

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Setting out on the journey to buy or lease a new car can be a daunting task by itself, before you figure in all the fancy lingo dealerships use when negotiating things like contracts and monthly payments. If you're new to the whole thing, it might feel like buying or leasing a car involves learning an entirely new foreign language. Honestly, though, the terminology isn't all that difficult once you have the grasp of a few basic terms. Here's a quick, fundamental overview.
Annual Percentage Rate (APR): The yearly interest rate, usually expressed as a percentage, that you accumulate on the loan you take out when you buy a new car.
 
Acquisition Fee: An additional upfront cost used by dealerships to cover processing fees.
 
Capitalization Cost: The current total cost of a car, which is used to calculated the monthly payments owed on a leased vehicle. This is also frequently abbreviated to “cap cost.”
 
Cap Cost Reduction: The amount of money you pay upfront when leasing a vehicle. The more cash you put down at the beginning, the lower your monthly payments will be.
 
Depreciation: The difference between the cap cost and the residual value. This will be the total amount you pay on a leased vehicle, including the cap cost reduction and the monthly payments.
 
Down Payment: The money you pay for a newly purchased vehicle upfront, which will reduce the amount owed on monthly payments when you take out a loan.
Lease Term: The amount of time, negotiated by contract and usually lasting 12 to 24 months, that you are granted ownership of a leased vehicle.
 
Manufacturer's Suggested Retail Price (MSRP): This is the base sticker price of a vehicle, and often only used by dealerships as a guideline.
 
Monthly Payment: The amount of money you will pay once a month towards the negotiated total cost of your vehicle, whether leased or bought on a loan.
 
Quoted Dealer Price: This may or may not be the same as the MSRP. The actual retail cost of the vehicle.
 
Residual Value: A prediction of what a leased vehicle will be worth after your lease term has ended. This is used to calculate the total cost of the vehicle over the lease term and your monthly payments.
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