Auto finance definitions to remember

Auto finance definitions dictionary

Think back to the last time you bought a vehicle.

Did you feel, at times, like the salesperson or finance manager was speaking a different language? It can happen.

Sometimes using industry-lingo becomes second nature and we forget that others don’t always speak our language. Here are a few terms and definitions to help clear things up when you make your next visit to the dealership.


Also known as options; features added on to a vehicle either by the dealer or at the request of a consumer such as an upgraded stereo system, anti-theft system, detailing and undercoating.

Buyer’s Order/Purchase Order

A bill of sale or “receipt” for the vehicle; a document reflecting the details of the sale, including the buyer’s information, the vehicle information, the purchase price, taxes and fees.

Destination Charge

The fee charged for transporting a vehicle to the dealer from the manufacturer or port of entry; typically this charge is passed on to the buyer.

Down Payment

Cash or trade equity applied to the sale of a vehicle; subtracted from the cash price of the purchased vehicle to reduce the amount to finance.


Aging and/or damage to a vehicle that is beyond what is normally expected and left un-repaired or replaced. Examples of excess wear include, but are not limited to, cracked windshields, body damage and broken or missing equipment.

Extended Service Contract (ESC)

Also known as a Vehicle Service Contract (VSC); an optional agreement purchased to supplement the factory warranty of a vehicle; agreements vary widely in terms and conditions as well as coverage and cost.


Guaranteed Asset Protection; optional insurance coverage that pays the difference between what is owed and what the vehicle is worth in the event the automobile is stolen or destroyed.

Invoice Price

The manufacturer’s initial charge to the dealer, including the destination charge. Invoice price does not include any add-ons (options) that may have been installed by the dealer or requested by a customer.


Manufacturer’s Suggested Retail Price; this represents the manufacturer’s recommended selling price for a vehicle.

Negative Equity

Also known as being “upside down;” when the amount owed is greater than the market value of a vehicle.


A manufacturer’s reduction on the price of a vehicle as an incentive to buyers. Sometimes compared to a “discount,” a rebate is not the same as a down payment.


Different from a title in that it must be renewed on a regular basis; shows proof that appropriate fees have been paid in the driver’s state of residence and the vehicle can be legally driven and properly identified.


The title of the vehicle is the ownership document. When a vehicle changes ownership, the title is transferred into the new owner’s name within a specified period of time, depending on state rules and regulations.

Trade Equity

Also known as positive equity; when the amount owed is less than the market value of a vehicle.

Two women discussing auto finance definitions at a dealership


Familiarizing yourself with some of the most common terms that come up during a vehicle sale can be helpful. More importantly, though, don’t be afraid to ask the salesperson or finance manager questions. It’s important that you feel comfortable with your purchase, and that includes understanding the terms of your purchase.

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