Glossary of Car Buying Terms

Navigating the process of buying a new car can be intimidating, especially when you don’t understand all the jargon. Not only can you get lost in the conversation with the dealer, you might also miss key details leaving you with a bunch of questions when you walk out. This Glossary of Car Buying Terms contains a comprehensive list of the important things that are useful to know when you are shopping around for your new car.

Assured Future Value

Assured or Guaranteed Future Value is the amount a finance company is willing to pay to buy back your car at the end of your finance agreement period. This value is agreed upfront based on a set amount of kilometres, your car meets fair wear and tear vehicle standards and you maintain the fixed repayments for the agreed time.

At the end of the assured future value agreement you will be able to renew by choosing a new vehicle, retain by paying for the outstanding amount or return the vehicle with no further payments.

Balloon Loan/Balloon Payment

The balloon payment is the final amount required to settle the finance loan agreement. It is usually a significantly ‘large’ amount to offset the much lower regular repayments during your loan term.

Base Rate

This is the interest rate that the dealer acquires from the finance company. It will be lower than the interest rate which is offered to you as the customer unless they are offering a special interest rate. This sometimes occurs when a new car distributor subsidises the interest rate to make their vehicles more affordable, as is the case with Suzuki Finance.

Buyout Price

The buyout price is what you’ll pay to own the car at the end of a finance lease agreement. This price is based on the residual value of your vehicle at the beginning of the lease, the total remaining payments and possibly a car purchasing fee.

It’s worth comparing the costs of buying it outright in the beginning and buying it after the lease, especially if there is a high chance you’ll buy it at the end of the lease.

Capitalised Cost Reduction

Any type of payment from a down-payment to a trade-in that ultimately lowers the total amount financed through your finance, future value or lease agreement is a capitalised cost reduction.

Clean Car Discount Rebates & Fees

When you buy a new zero or low emission vehicle that emits under 80 g/CO₂, such as an EV or plug-in hybrid vehicle, you can claim a Government Clean Car rebate. If the vehicle emits emissions above 150 g/CO₂, you will pay a Clean Car fee at the time of registration. Vehicles between and 80 and 150 g/CO₂ are classified as neutral with no fee or rebate applied. The fees and rebates are processed by Waka Kotahi NZ Transport Agency.

Closed-End Lease/Walk-Away Lease

This is a type of lease where you can either buy the car at the end of the lease term at a fixed price or end the agreement without having to pay for any unexpected reductions (damage or modification) to the value of the car. It’s a pretty standard offer from companies and banks but you should always check.

Dealer Incentives

Dealer incentives are when the manufacturer gives special offers to the dealerships and these special offers are then passed on to the customers.

Default

Default refers to when you fail to make payments or follow the terms of your financing agreement.

Deposit/Down Payment

A deposit or down payment is the cash you pay up front either to reduce the amount you want to finance in a loan or a lease, to pre-order a vehicle or secure the used car you are wanting to buy.

Destination Charge

This is the amount charged for transporting new cars from the manufacturer’s distribution centre to the dealership. This is usually included in the selling price of a new car, but it pays to check if there are additional charges when it is a used car.

Disposition Fee

This is a termination fee charged by finance companies at the end of the lease to cover the total cost of transporting the car back to their fleet and getting it ready for sale once again.

Early Termination Fee

A penalty charge you get for withdrawing from a loan or lease before the scheduled end date is an early termination fee.

Equity Lease

Sometimes referred to as an “open-end lease”, an equity lease is where the cost of the vehicle depreciates a set amount each month until you reach a predetermined balance (or zero balance at all).

Establishment/Documentation Fee

The establishment or documentation fee covers the cost of processing the paperwork for the sale of the car and is included in the on-road costs for a new car or the selling price of a used car.

If you have a finance, lease or assured future value agreement, then there is also a documentation or establishment fee to cover the finance company costs to process this paperwork.

Excess Mileage Charges

Excess mileage charges are what you pay at the end of a lease or assured future value agreement, if your vehicle exceeds the km allowance outlined in your contract. You can avoid this by purchasing excess mileage at the start of the lease agreement as it works out to be cheaper.

Excess-Wear Charge

This is a penalty charge you pay at the end of the lease or assured future value agreement if your car is returned in poor condition. The charges can include anything that lowers the value of the car as well as modifications like tinted windows or different wheels.

Extended Warranty

The extended warranty is a guarantee to cover certain service and repairs beyond the factory warranty for your vehicle. Check if the car manufacturer offers an extension to their standard manufacturer’s warranty.

Fair Market Value

Fair market value is the price of the car that both a willing buyer and willing seller agree to for the exchange. This price point is typically calculated using the make, model, year, mileage, condition and modifications of the car. The fair market value differs from the trade-in value because it reflects what the vehicle would typically be sold for in a private sale.

Finance Loan Agreement

This is the signed contract that documents a financial agreement between two parties, where one is the lender and the other is the borrower. This contract outlines the amount of the loan, the interest charges, the repayment plan, and the payment dates. It also includes a disclosure statement which details the total amount to pay, the contact details of the lender, how the interest is calculated, the interest rate if you fail to pay, a summary of the fees, any items listed as security and how to cancel the agreement or apply for hardship.

Finance Rate/ Annual Percentage Rate (APR)

This is the interest rate applied to the length of the loan and the amount you borrow to pay for your new car. It is calculated by applying the rate to your loans’ reducing balance over time and standardised on an annual basis regardless of the actual term.

It is helpful so that you can compare rates across banks, dealerships and other financial lenders.

Fixed (Guaranteed) Residual

The fixed residual is the price agreed upon at the start of the lease where the lessor sells the leased vehicle to you (the lessee) at the end of the lease.

Gap Insurance

GAP or guaranteed asset protection insurance covers the difference of the vehicle’s depreciated value in a lease or loan and the amount owing in the event the car gets damaged or stolen.

Lease Agreement

A lease is a financial contract that outlines a long term rental agreement where the dealer or lease company purchases the car and lets you use the car for a certain amount of time or mileage in exchange for monthly payments. The lessee can buy the car at the end of the lease or return it to the dealer, depending on the terms of the lease.

Lease Payment

This is the amount you pay every month of your lease term for the use of the vehicle. This payment includes the rent charge, depreciation charge and applicable taxes.

Lessee

The lessee is the person who is leasing or renting the car.

Lessor

The lessor is a 3rd party or finance company that is the true owner of the leased car and to whom the lessee must make monthly payments to.

Manufacturer’s Warranty

Offered by the manufacturer, this more detailed warranty for new vehicles covers any part of the vehicle found to be defective because of faulty materials or manufacturing. This warranty is conditional based on having the vehicle serviced as per the manufacturer’s service schedule. There are some things it does not cover such as wear and tear, tyres, oil or window glass or any damage from misuse, an accident or non-genuine parts and the warranty is valid for a maximum amount of kilometres.

Motor Vehicle Insurance

Comprehensive motor vehicle insurance covers your car if it gets stolen or damaged in an accident and pays out whoever’s car or property might have been affected by your car. It may have add-ons like roadside assistance. It is generally the most expensive insurance option as it pays out for the widest range of situations.

If you have a finance agreement, your car will need to have comprehensive motor vehicle insurance.

MR2A Registration Form

For new vehicles and newly imported vehicles, a MR2A Application to Register a Vehicle form for either 6 or 12 months must be submitted to the Waka Kotahi NZ Transport Agency. The dealership will complete this process on your behalf, receiving the registration plates to put on your new car.

The one-off registration fee covers the cost of the plates and administration and is usually included in the on-road costs charged by the dealership.

On Road Costs

On-road costs or ORCs are charges added to the selling price of a new or imported car to ensure it is ready to drive on New Zealand roads. These costs cover registration fees, a warrant of fitness and pre-delivery inspections, grooming, etc.

Open-end lease

Open-end lease is a contract offered to fleets and companies where the lessee is responsible to pay the difference between the fair market value at the end of the lease and the residual value.

PPSR (Personal Properties Securities Register) Fee

The PPSR fee is one of the additional costs included in the arrangement of a loan finance agreement. PPSR is an online noticeboard where details of security interests in personal property can be registered and the fee is to check this register and update any records required.

Prepayment Penalty/Early Termination Fee

This is a penalty charge for paying off a loan earlier than the agreed term. This penalty occurs to compensate the lender as early payment reduces the interest received from you.

Pre-Qualify

This is when a lender deems you eligible for a loan without you having to commit or accept it straight away. This provides a helpful estimate of what you can afford to put towards a new car as the lender has checked your credit history and your ability to repay your debt.

Principal

The principal is the amount borrowed in the loan agreement before interest and fees are included.

Rebate

A rebate is a partial refund on a newly purchased car offered by a dealer or manufacturer to help boost sales. Your rebate can either be deducted from purchase price or refunded after the sale.

See Clean Car Rebates for an explanation on those provided by the Government.

Recommended Retail Price (RRP)/Suggested Retail Price (SRP)/Suggested Selling Price (SSP)

This is the base price of a new vehicle excluding any accessories or on-road costs (unless otherwise stated).

Rent Charge

A rent charge is a fraction of your lease payment which goes towards the financing instead of reducing your principal.

Residual Value

The estimated value of the car at the end of the lease or assured future value agreement set by the finance company.

Sell Rate

The sell rate is the price at which a dealer offers financing options to you as the customer. This is not to be confused with the base rate which is the price at which the dealer acquired the financing.

Service Plan

A service plan is an additional extra that you can pay for upfront to cover the servicing of your vehicle over a 1 to 5 year period. Dealers can sometimes include service plans in your finance loan agreement.

Spread/Bump:

Spread or bump refers to the difference between a dealer’s buy rate and sell rate for financing a lease or loan.

Sticker Price/Asking Price

This is the selling price of a used vehicle.. There may be room for negotiation with some dealers depending on the amount of your deposit, the value of your trade-in, previous customer purchase history and the type of model you are looking at.

Term

Term is the length or duration of a loan, lease or assured future value agreement.

Termination Fee

This is a one-off fee if you want to end your loan, lease or future value agreement earlier than the agreed upon term. This may be because you can no longer afford the monthly payments, you no longer need the car you are financing or leasing, or you want to start a new finance deal on a better car and so cancelling is the quickest method.

Test-Drive Waiver

To test-drive potential vehicles at a dealership, you may need to sign a test-drive waiver. You will need to provide a copy of your driver’s license and abide by the conditions listed in the agreement. Signing the waiver means you are covered by the dealership’s car insurance should something happen.

Third-Party Insurance

With third party insurance, your provider will settle a payout for the car or property damaged by you. If your car is stolen or gets into an accident where you are at fault, you’ll have to pay out of your own pocket to fix or replace it.

Total Amount Payable

These are the total charges for using the bank or lenders funds to buy the car including interest, establishment fees, PPSR and any other charges incorporated into the finance term.

Trade-in Value

Trade-in value is the price a dealer will pay for your current car when they sell you a new one. This price is typically lower than selling it yourself however it tends to be a more convenient process. Click here to find out more about how to successfully trade your vehicle.

Up-Front Costs

This refers to the costs that need to be paid when signing the loan agreement so you can drive the car away. These may include the deposit, on-road costs, and finance fees.

Upside Down

Upside down is when the sum you owe on a loan is more than your car’s worth. To manage the effect, do your research, stick to your budget, choose the shortest loan term you can afford, put down the largest deposit you can manage and continue making regular payments.

Vehicle Identification Number (VIN)

The VIN is a unique 17 character ID number that identifies a vehicle for registration, warrant of fitness and other processes.

Vehicle Offer & Sale Agreement (VOSA)

A VOSA is the signed agreement between the dealership and you regarding the vehicle you wish to purchase. It includes yours and the dealer’s contact details; the agreed total price, amount of deposit, value of your trade-in; the vehicle’s details such as odometer, vehicle identification number (VIN), WOF expiration, any adds on accessories, and any finance details.

Through understanding these terms, you'll feel more confident next time you step into your car dealership and shop around for your ideal car. Remember to talk to your financial advisor about a manageable plan that is right for you.

If you’re still feeling nervous and want to feel more confident before you commit, download our Complete Guide to Buying a New Car.