Legalese: What do all these car dealer words mean?

Although exciting, buying a new car can be an intimidating experience. It’s one of the most expensive purchases you can make after a house, so there’s so much to consider: safety, style, look, efficiency, practicality, space and comfort.

Topping that with the stress of figuring out terms like capped price servicing or dealer delivery can make for a real daunting time.

Imagine: You've read a review about a car that’s priced at $22,000 and show up to the dealership to find it’s actually $25,800. What's going on?

There’s no dictionary you can carry around to dealers to help decipher sales-speak, so here we debunk the lingo so you never have to worry about it again.

Annual Percentage Rate (APR)

Just like a mortgage or credit card, the APR is the interest rate for a year, rather than monthly calculations or fees.

ANCAP Rating

The Australasian New Car Assessment Program assesses the safety of new vehicles and uses a star rating system.

The top rating is five stars, so if you’re looking at a car rated at four stars or below, you should research why it failed to score five stars before you buy.

Capped Price Servicing

Capped price servicing is a selling-point for manufacturers and sets the price of scheduled servicing through a brand’s service centres, usually for three-to-five years.

It allows dealers to lock you into dealership servicing, but is often offered at a compelling price.

Compulsory Third Party (CTP) Insurance

Also known as a ‘green slip’ if you’re in New South Wales, CTP is a compulsory insurance required by law to register a car.

It’s usually included in your registration fees and covers drivers for any injury or death they cause to another person or persons in an accident with a car, cyclist, passenger or pedestrian.

Dealer Holdback

When a vehicle is sold by a dealership, a manufacturer will pay a percentage of the MSRP (see below) back to the dealer. Watch out for this on your invoice, it’s a good bargaining tool for buyers.

Dealer Incentive

A dealer incentive is a discount offered to a dealership from a manufacturer and often only lasts for a short time.

Dealer Preparation Fees

A fee (usually a few hundred dollars) for getting the car ready for you to drive away from the dealer.

If you’re buying a new car, all dealers usually need to do is check fluids, tyres, and wash the car. This is often included in the dealer delivery fee.

Destination charge

A flat fee that you’ll pay to cover the costs of transporting the car to the dealership. These costs are usually included in on-road costs or dealer delivery.

Documentation/Processing Fee

As the name suggests, this is a fee (in the hundreds of dollars) that dealers charge for processing the sale documentation. It costs a lot to sign all those papers, you know.

Drive away, no more to pay

Means the price of the car covers almost all your on-road costs. You’ll still have to think about car insurance, on-going registration, dealer delivery, and probably a tank of fuel after you leave the dealer’s driveway.

Direct Financing

A loan organised directly through a bank or financer, rather than through the dealer.

Dealer Delivery Fees

Dealer delivery covers the cost of getting the car to the dealership and ready for the customer through checks, washing, etc. But the fee can vary by thousands of dollars depending on the profit margin.

It’s a way for the dealership to actually make some money on the car and still bargain with you.

Demonstrator

If you’re buying a demo car, you’re buying a car that’s been on the dealership floor and use by staff or for test drives.

Extended warranty

Usually an extra cost (but sometimes included in the sale price) to extend a car’s warranty.

Manufacturer’s Suggested Retail Price (MSRP)

The recommended retail price (RRP) set by the manufacturer.

On-road costs

On-road costs are those pesky little extras you wouldn’t normally have to think about when purchasing of goods and services.

Commonly, these are stamp duty, registration, CTP, and dealer delivery. If a dealer is offering you ‘no on-road costs’, or a ‘drive-away price’ then your on-roads are covered.

Plate Clearance

Deals offered toward the end of the year when car yards need to clear cars with old dates on build ID plates.

Essentially, the cars have been in stock for a year and have already depreciated, so dealers want to move them to make way for newer cars.

Run-out

A run-out sale is a good opportunity to buy a new car without the new car price.

When manufacturers are ending production of a model, introducing a new generation of a car, or basically ‘running out of stock’, they sell them cheaply to make room for new cars.

Stamp Duty

Just like stamp duty on your house, this is a tax based on the value or sale price of your car. As this is a government tax, it’ll be paid every time you buy a new car.

Trade-in

When a dealership buys your used car and uses it as payment toward your new car. Usually this is a percentage below market value.

Up-front costs

The costs you have to pay when signing the contract, before the dealer hands over the keys to your car.