Buying Used Cars: Unlocking the Meaning of Key Terms
You shouldn't have to be an acronym expert to buy a used car. But the alphabet soup that comes when you buy used cars – MSRP, APR, GAP, NADA, ASE – can leave you sending out an SOS.Following are some of the key terms that you should be familiar with in order to make an informed decision when buying a used car.
Shopping for a Used Car
Certified Used Car: Many manufacturers and dealers evaluate the condition of a used car and “certify” it via an inspection. Most of the inspections performed by manufacturers, dealers, and other used car sellers are rigorous and comprehensive – 100 points or more, including all major systems and components such as brakes, steering, suspension, transmission, electrical, air conditioning, and heating. Certified used cars often come with the same benefits as a new vehicle. When buying used cars, you should inquire whether or not the car is certified.
VIN (Vehicle Identification Number): All cars and light trucks built since 1982 have a unique 17-character VIN that provides access to valuable information about that vehicle's history, which could be especially important when you buy used cars. The VIN is found on dashboards, driver's side door jamb stickers and title documents.
No-Haggle Pricing: The price marked on a used car is the price for which it will sell1 – making the process of buying used cars much more consumer friendly.
MSRP (Manufacturer’s Suggested Retail Price): This is the price that is typically recommended by a manufacturer for each new vehicle.
Limited Powertrain Warranty: This generally covers engine, transmission, transaxle, and drive system – parts related to getting power from the engine to the drive wheels for a time specified in miles and/or months.
CARFAX®: If you plan to buy a used car, a quick visit to this company’s website could affect your decision. CARFAX provides complete vehicle history reports that can uncover costly hidden damages, such as flood damage, odometer fraud, even a vehicle that has been totaled or rebuilt.
Buying a Used Car
Zero Percent Financing: First, this offer is generally limited to those people with excellent credit. If you qualify for zero percent financing, the payments can still be pretty steep since many interest-free offers require financing terms of three years or less.
APR (Annual Percentage Rate): This is the yearly percentage rate charged to borrow the money to buy a used car. APR shows a true finance rate as it includes all of the fees associated with the purchase of the car.
Equity: The value of the used car trade-in, minus the outstanding loan amount or payoff.
GAP Waiver/Insurance (Guaranteed Asset Protection): Waiver/Insurance that covers the "gap" between the actual value of a used car at the time of a total loss, and the amount the owner still owes the finance company.
Term: The length of time an individual has to pay back the money that was borrowed to buy a used car. This is generally 12 to 72 months.