Learn Car Buying Jargon

Acquire knowledge about the new jargon of the auto industry with Car Buying Glossary. Do not let unknown words misguide you in your car purchase! Understanding the glossaries related to buyer’s perspective is crucial. Here are simplified version of hundreds of car buying glossary terms that will ease to understand the auto experts.

Making sense of dealer-speak.

Dealer Holdback: A small percentage of a vehicle’s cost that a manufacturer pays back to a dealership after the vehicle has been sold. This is what allows dealerships to sell vehicles at invoice price or below and still make a profit.

Dealer Incentives: Special offers from car manufacturers to their dealers—which are usually passed on to the customer—to encourage sales in a slow market or when excess inventory builds up.

Dealer Invoice: The amount a manufacturer charges its dealers for a car.

Handling Charges: Charges—usually negotiable—added to the purchase price of a new car to cover the cost of preparing the car for sale after its transport to the dealership.

Destination Charge: The amount charged for transporting new cars from the factory to the dealership. The destination charge on the dealer invoice is not negotiable, but you should never pay any added destination charge tacked on by a dealer, unless you've requested and agreed to such a charge for a vehicle that must be transported a long distance from another dealer.

Documentation Fee: Charges intended to cover the cost of processing the paperwork involved in the sale of a car. Many fees charged by dealers are negotiable.

Rebate: A partial refund on a new-car purchase offered by the manufacturer or dealership in order to increase sales. Rebates can either be deducted from the purchase price or refunded by mail after the sale has been completed.

Ex-Factory Price of Car: It is the price Car Dealer pays to Manufacturer to lift the car from them i.e. it is the price at which a car manufacturer sells the car.  Ex-Factory Price Terminology is not so common as it is between the Manufacturer, Dealer.

Ex-Showroom Price of Car: Ex-showroom Price of Car is the price at which a car dealer sells a car to Retail Customers which includes Dealer Margins, Transportation costs and applicable Excise, State Taxes and Octroi Charges. Ex-showroom Price is called the basic price of the asset exclusive of any registration, insurance or loadings.

What is on-road price?
On top of the ex-showroom price, one needs to pay a lifetime road tax, a registration charge, insurance charge that is renewed periodically and logistics charges. In short, on-road price is at which the dealer would hand over the keys of the vehicle to you. Typically, the prices that are added are

  1. Registration charges:  Registration is mandatory of every new vehicle. It is a unique identity of vehicle 
  2. Life Time Road Tax: Road tax, known by various names around the world, is a tax which has to be paid on a vehicle before using it on a public road.
  3. Vehicle Insurance: Also known as auto insurance, is insurance purchased for cars, trucks, motorcycles, and other road vehicles.
  4. Dealer Handling Charges or Logistics charges: Dealer claims handling charges in name of taking car from warehouse to showroom.

Extended Warranty

Who stands behind the warranty?

Many dealerships offer third-party warranties from companies with Varying track record. If you are going to purchase an extended warranty, make sure it is backed by the automaker, not just the dealership or some other company. You can use a manufacturer-backed extended warranty at any dealership across the country. A third-party warranty might be good only at the dealership that sold it to you.

If you are considering coverage for a specific purpose, such as a road-hazard policy that isn't offered by the automaker, check for online reviews to see what others are saying about it.

Car Extended Warranty

Car Warranty is a Service Contract between Manufacturer and Customer which includes repair or replacement of

  1. Mechanical i.e. Engine Related Components 
  2. Electrical Components in Car
  3. Emission System of Car
  4. Suspension System including Shocker Mounts (which is also wear and tear item) - if driving too much on bad patch roads / speed breakers without getting slow on it.

causing technical problem in car provided same has not occurred due to any consequential or reasons mentioned as specified by manufacturer.

Extended Warranty acts as Mediclaim Policy to your car. It offers a peace of mind to car owner as cover for failure of any Manufacturing Fault in Car.

Note: There is no difference in between Standard and Extended Warranty of Car. Extended warranty as name suggest is an extension of standard 2-year warranty to 4 or 5 years.

Key benefit: Any Failure of Mechanical or Electrical or Emission System - All Part Replacement and Labor Charges will be borne by Manufacturer. 

What is not Covered in Car Warranty

  1. All Scheduled Maintenance Services as per Service Booklet including - Oil, Air Filter, Fuel Filter, Pollen Filter, Spark Plug etc. Wear and Tear Items - Bulb, Belts, Hoses, Bushes, Seals, gaskets.
  2. Repairs like - AC Gas Leakage, Fuse Change, Wiper Blade, Windshield Glass Crack etc. unless found a manufacturing defect due to which same happen.
  3. Battery, Music System, Parking Sensor, Speakers and Tyre not covered under Manufacturer Warranty - but has separate warranty from there OEM for 1 year or 2 years at best.
  4. Paint and Corrosion unless explicitly stated in Warranty terms. Volkswagen India gives Paint and Anti Corrosion Warranty.
  5. Any Accidental Repair / Dent / Scratches or Part Replacement due to Accident.
  6. Any repair arising due to Consequential damage. Some examples are:

    - Driving Car with Engine Oil leakage which can seize the Engine.

    - Radiator Damage due to Coolant Leakage.

    - Trying to Jump Start Car with Drained Out Battery which can Cause Catalytic Converter to Fail or even.

    - Running Car in Deep water which can cause engine seize.

    When Warranty Can be Void?

    When Scheduled Servicing of Car is not done as per recommended Service Schedule specified.

    Any Damage to ECU due to fitment of non-genuine accessories or incorrect fitment from unauthorized centre can damage ECU.

    When Repairs done from an Unauthorized Centre or Counterfeit Spare Part Used or Non Genuine Accessories used in Car which can impact Car Wiring.

    Attempting to Install any Accessory by Slicing / Modification in Car Electrical Wiring System.

    Fitting LPG / CNG even from Manufacturer Authorized Dealer or CNG Authorized Centre Place - unless specifically and cross checked mentioned by Manufacturer that installing CNG from Authorized Dealer will not void warranty and same obtained in written.

Basic Auto Insurance Policy

Your auto policy may include six coverages. Each coverage is priced separately.

  1. Bodily Injury Liability

    This coverage applies to injuries that you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else’s car with their permission.

    It’s very important to have enough liability insurance, because if you are involved in a serious accident, you may be sued for a large sum of money. Definitely consider buying more than the state-required minimum to protect assets such as your home and savings.

  2. Medical Payments or Personal Injury Protection (PIP)

    This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.

  3. Property Damage Liability

    This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else's property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.

  4. Collision

    This coverage pays for damage to your car resulting from a collision with another car, object or as a result of flipping over. It also covers damage caused by potholes. Collision coverage is generally sold with a deductible of $250 to $1,000—the higher your deductible, the lower your premium. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you're not at fault, your insurance company may try to recover the amount they paid you from the other driver’s insurance company. If they are successful, you'll also be reimbursed for the deductible.

  5. Comprehensive

    This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer.

    Comprehensive insurance is usually sold with a $100 to $300 deductible, though you may want to opt for a higher deductible as a way of lowering your premium.

    Comprehensive insurance will also reimburse you if your windshield is cracked or shattered. Some companies offer glass coverage with or without a deductible.

  6. Uninsured and Underinsured Motorist Coverage

    This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver.

    Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.

Droom Buyer Surety

Droom Buyer Surety is a program under which Droom offers free vehicle cover of up to ₹50 Lacs for specific vehicles bought through its online platform. This is an assurance that Droom gives to its buyers about vehicles’ condition. Buyer Surety can be claimed within 6 months of purchasing an eligible vehicle from Droom. Buyers across India are covered under this policy and can take advantage of it. Droom offers hassle free claim and quality service.

What is Leasing?

Leasing is a smart move of any business to optimise its cost on vehicle procurement and fleet management.

Acquisition Fee: A fee charged by the dealer for initiating a lease; ostensibly covers the costs of processing the lease—credit reports and insurance verification, for example—but is in actuality pure profit. Although many fees associated with a lease are negotiable, this one is generally unavoidable.

Vehicle leasing is the leasing (or the use of) a vehicle for a fixed period of time at an agreed amount of money for the lease. It is commonly offered by dealers as an alternative to vehicle purchase but is widely used by businesses as a method of acquiring (or having the use of) vehicles for business, without the usually needed cash outlay. The key difference in a lease is that after the primary term (usually 2,3 or 4 years) the vehicle has to be returned to the leasing company for disposal.

Lease agreements- Lease agreements typically stipulate an early termination fee and limit the number of miles a lessee can drive (for passenger cars, a common number is 10,000 miles per annum though the amount can be stipulated by the customer and can be 12,000 to 15,000 miles per year). Dealers will typically allow a lessee to negotiate a higher mileage allowance, for a higher lease payment. 

Foreclosure Charges- Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower, who has stopped making payments to the lender, by forcing the sale of the asset used as the collateral for the loan.

What are the advantages of Leasing?

  1. Fixed monthly payment- Pay just a monthly fee inclusive of vehicle cost, accessories, road tax, maintenance and insurance.
  2. Pay for what you use- Genuine cost savings as lease rental is calculated based on your car’s usage and not on its entire value.
  3. Intact credit worthiness- Continue to enjoy your credit worthiness as unlike a loan, lease is an off balance sheet expense.
  4. No maintenance worries- They take care of all cost and effort of repairs as well as accident management.
  5. Added convenience- Value added benefits like, fuel management, replacement vehicle and lots more.
  6. No down payment- Greater liquidity for your business as there is zero up-front cost for acquiring the vehicles.
  7. Full tax exemption- Reduce your tax burden as leasing is an off balance sheet expense.
  8. Effortless resale- There is hassles resale of the automobile associated with the leasing of a car.
  9. Capitalized Cost Reduction- This is how much you've managed to reduce the price of the car. This may be due to your negotiation skills, rebates and incentives, or a down payment.
  10. Sales and Use Taxes- A lease doesn't incur sales tax on the entire cost of the vehicle. Instead, only the lease payments are subject to that tax.
  11. Refundable Security Deposit- Before you take delivery, you'll likely have to pay a refundable sum to the manufacturer to pay for any damage present at the end of the lease.
  12. Net trade-in allowance- The amount the dealer pays for your old hoop tie
    1. Gross Capitalized Cost-  This is the full sticker price of the car. Leases, like purchases, are based on vehicle prices that are negotiable. The lower the vehicle's price, the less the lease will cost you.
    2. Residual Value- This is what the carmaker estimates the vehicle will be worth when the lease ends. The less it's worth, the higher the lease payments.
    3. Depreciation- How much value the car loses over the lease period. This is essentially what you are paying for.
    4. Rent Charge- The amount of the lease payment that comes from interest charges. To calculate the rent charge, add the adjusted cap cost to the depreciation and multiply by the finance factor. (cap cost + depreciation) x finance factor x length of lease in months = rent charge.
    5. Base Monthly Payment- The amount paid per month. It consists of the depreciation and the rent charge divided by the number of months in the lease.
    6. Total Monthly Payment- The base monthly payment with sales tax. Get used to writing checks in this amount.
    7. Excessive Wear and Use- If you drive farther than the distance stipulated in your lease, you will be charged for each extra KMs.
    8. Title Fees- A paper-shuffling charge for procuring a title from the state for you.
    9. Registration Fees- The cost of registering the car in your state.
    10. Purchase option at End of Lease Term- It's possible to buy the car at the end of the lease for the residual value plus whatever processing fees the manufacturer creates.
    11. Finance Factor- This is the interest rate you'll be paying.
    12. Lessor: The party who is the owner of the equipment permitting the use of the same by the other party on payment of a periodical amount.
    13. Lessee: The party who acquires the right to use equipment for which he pays periodically.

Lease Rentals- This refers to the consideration received by the lessor in respect of a transaction and includes:

(i) Interest on the lessor’s investment;

(ii) Charges borne by the lessor. Such as repairs, maintenance, insurance, etc;

(iii) Depreciation;

(iv) Servicing charges.

Types of Leases:
The different types of leases are discussed below:

  1. Financial Lease:
    This type of lease which is for a long period provides for the use of asset during the primary lease period which devotes almost the entire life of the asset. The lessor assumes the role of a financier and hence services of repairs, maintenance etc., are not provided by him. The legal title is retained by the lessor who has no option to terminate the lease agreement.
  2. Operating Lease:
    It is where the asset is not wholly amortized during the non-cancellable period, if any, of the lease and where the lessor does not rely for is profit on the rentals in the non- cancellable period. In this type of lease, the lessor who bears the cost of insurance, machinery, maintenance, repair costs, etc. is unable to realize the full cost of equipment and other incidental charges during the initial period of lease.
  3. Sale and Lease Back Leasing:
    To raise funds a company may-sell an asset which belongs to the lessor with whom the ownership vests from there on. Subsequently, the lessor leases the same asset to the company (the lessee) who uses it. The asset thus remains with the lessee with the change in title to the lessor thus enabling the company to procure the much needed finance.
  4. Sales Aid Lease:
    Under this arrangement the lessor agrees with the manufacturer to market his product through his leasing operations, in return for which the manufacturer agrees to pay him a commission.
  5. Specialized Service Lease:
    In this type of agreement, the lessor provides specialized personal services in addition to providing its use.
  6. Small Ticket and Big Ticket Leases:
    The lease of assets in smaller value is generally called as small ticket leases and larger value assets are called big ticket leases.
  7. Cross Border Lease:
    Lease across the national frontiers is called cross broker leasing. The recent development in economic liberalisation, the cross border leasing is gaining greater importance in areas like aviation, shipping and other costly assets which base likely to become absolute due to technological changes.

Lease Agreement

A lease agreement gives you the right to use an asset for an agreed period. During the agreed period of the lease you are obliged to make payments for the use of the asset as set out in the lease agreement. At the end of the lease, you can either extend the lease or take ownership of the asset. If you choose to take ownership of the asset, there may be a final payment required depending on the terms of your lease agreement.

This option is best if

  1. You want to fix the cost of maintenance; or
  2. You need to use expensive items, like motor vehicles, but you don't necessarily want to buy them; or
  3. The vehicles used in your business depreciate rapidly and need regular replacement

What a Lease Agreement offers me:

Leasing provides the use of an item for an agreed period, during which time a rental is paid. At the end of the term, the goods can either be returned, you can acquire ownership or extend the lease.

  1. Periods range from 12 to 72 months.
  2. Interest is calculated at either fixed or prime-linked rates.
  3. The goods must be fully insured during the agreement.

What this allows me to do:

The following applies primarily if the item is being used for business, or in the generation of income:

  1. Repayments can be claimed as an expense against tax.
  2. You don't need to own the asset to use it.
  3. You avoid tying up working capital.
  4. Stepped payments, balloon payments and other structures can be tailored to your needs.
  5. You can arrange to take ownership of the asset.
  6. If you do take ownership, you may benefit from the asset's resale value.
  7. Optional Features (consider adding You may want to consider taking the following option with your finance package:)
  8. Take-A-Break Payment


Annual Percentage Rate (APR): Also called a finance rate, this is the interest rate on a loan; a percentage of the amount borrowed that a lender charges annually for the use of its money.

Equated Monthly Instalment(EMI): The full form of EMI is Equated Monthly Instalments. It is an amount repaid by a borrower to the lender along with the agreed interest.

EMI = P(r(1+r)n / (1+rs)n-1)

Cost of Funds: An APR, a money factor, or a rent charge, this is the charge for using the bank’s—or another lender’s—money to acquire the car. Also known as financing costs.

Default: Failure to make payments or otherwise abide by the terms of a financing contract.

Down Payment: Cash paid up-front by a borrower to reduce the amount financed in a lease or loan. While a large down payment can reduce your monthly payments.

Early Termination Fees: Penalties paid for withdrawing from a loan ahead of the scheduled end date. Typically, these penalties are very large—akin to simply paying off all remaining payments without the use of the car. These may apply if a vehicle is stolen or totalled and you don't have gap insurance.

Finance Rate: Also called an “annual percentage rate”; the interest rate on a loan. A percentage of the amount borrowed that a lender charges annually for the use of its money.

Gap Insurance: Insurance that covers the difference between a vehicle’s depreciated value in a loan and the amount owed on it in case it is stolen or totalled, a difference the owner or lessee would otherwise have to pay the lessor.

Pre-Computed Interest: A loan in which the total interest is calculated in advance and an equivalent percentage is baked into each monthly payment. If you pay off your principal early, the remainder of these charges should be refunded.

Prepayment Penalties: Charges for paying off a loan early. Because early payment minimizes your total cost of interest, paying off your principal early is usually a good idea. People with good credit and who qualify for good loans shouldn’t have to accept prepayment penalties.

Pre-Qualify: To have a lender confirm you are eligible for a loan without you committing to accepting it.

Principal: The amount borrowed.

Term: The length of a loan usually in years.

Secured Loan- Secured Loan is the loan that is sanctioned by the bank after a security is provided by the customer to get the loan.

Unsecured Loan- Unsecured Loan is the loan that is sanctioned by the bank without providing any security.

Loan Amortisation- Every time you make an EMI payment, you pay down some of the loan (the principal repayment), and also pay for the cost of the loan (the interest cost). This results in a gradual reduction to the principal amount of a loan. This process of paying down the loan is referred to as the process of amortisation.

Repayment Scenario- For most loans, there is a set schedule according to which you repay your loan using the EMI payments. There are three things you should be aware of:

Default- Untimely or irregular payments can bring you in the default category and affect your credit history. On the other hand, failure of payment of a home or car loan can also mean the lender taking over the legal rights for your house or car.

Change in EMI- If you have floating rate loan, your EMI amount is subject to change if interest rates change in the market.

Charges involved for lump-sum payments- If you choose to make a lump-sum prepayment on your loan, you may have to pay a 1 per cent to 3 per cent penalty charge to the lender along with some administrative charges and fees for early repayment.

Guarantor- When you take a loan, you might be asked to have someone as a guarantor to that loan, in case you default on the loan.

Cibil Score- A Credit Score or the CIBIL TransUnion Score is a three-digit numeric summary of your credit history.