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Must know auto terms

Sometimes it seems as though Phoenix Hyundai dealers have their own language. These days it’s not enough to be educated on just makes and models of cars, but now it seems as though customers need to know other key terms. Bankrate.com compiled a list of must know terms, and we took the top ten most common terms, consumers should know to ensure their getting the best deal. All terms have been defined by Bankrate.com.

Add-on interest — Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early.

Blue Book — Formally, it refers to the Kelley Blue Book, an industry guide dealers use to estimate wholesale and retail vehicle pricing. In common parlance, “the blue book price” can actually refer to a price looked up in one of the many guides to pricing. The books now come in a variety of hues, are issued by many organizations, and are commonly available online or in the reference sections of public libraries.

Dealer holdback — An allowance, usually between 2 percent and 3 percent of manufacturer’s suggested retail price, that manufacturers provide to dealers. A holdback allowance may allow the dealer to pay the manufacturer less than the invoice price. A buyer could obtain a car below invoice price and the dealer would still make a profit.

Dealer incentives — Programs offered by manufacturers to increase the sales of slow-selling models or to reduce excess inventories. Dealers may elect to pass on the savings to the buyer.

Dealer preparation, or dealer prep or preparation charges — An additional charge that dealers try to impose on buyers. It represents pure profit for the dealers, who have already been paid by the manufacturer for the cost of preparing the car for sale.

Extended warranty or Service contract — A contract that covers certain car repairs or problems after the manufacturer’s or dealer’s warranty expires. Extended warranties are sold by car manufacturers, dealers and independent companies. With a new car, the extended warranty usually must be purchased by the end of the first year of ownership.

Invoice price — The manufacturer’s initial charge to the dealer. The price may not be the dealer’s final cost because dealers receive rebates and other incentives from the manufacturer. The invoice price always includes freight, also known as the destination charge.

Prepayment penalty — A lender’s charge to the borrower for paying off the loan before the end of the term.

Rule of 78s — A mathematical formula that was devised in the days before modern calculators. The formula was a quick way for lenders in the 1920s and 1930s to estimate payoff amounts when a customer paid ahead on an installment loan. Some auto lenders still use the “Rule of 78s” formula to calculate a rebate of finance charges when a customer pays off a pre-computed loan early.

For a borrower looking to end an auto loan early, there isn’t a worse way a lender could calculate your payoff amount. The Rule of 78s formula packs extra interest charges into the early months of a loan. Using Rule of 78s, a lender typically collects three-quarters of a loan’s interest in the first half of a loan term. The Rule of 78s can only be applied to pre-computed loans that are paid ahead of schedule. The formula cannot be applied to simple interest loans.

Title — A legal document containing specific information about the vehicle. The title is the official proof of ownership and is used to transfer ownership from one person to another.

Check out your Arizona Hyundai dealer for the easiest and simplest buying experience. Also check out Bankrate.com for much more information on key terms to know in the auto industry.

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