Car Buying Glossary: Every Term, Explained Simply

Keep this page handy. If a salesperson uses a word you do not know, it is probably here.

Pricing

MSRP. Manufacturer's suggested retail price. The sticker price before fees and taxes.

Out-the-door price. The total you pay, including every fee and tax. The best number for comparing dealers.

Invoice price. Roughly what the dealer paid the manufacturer. Rarely shown to buyers, and it does not include every rebate the dealer gets.

Market adjustment. An extra dealer markup on high-demand vehicles.

Freight and PDI. Shipping the car to the dealer plus the pre-delivery inspection. Set by the manufacturer.

Documentation (doc) or admin fee. A dealer charge for paperwork. Varies by dealer.

Levies. Small government environmental charges for tires and air-conditioning refrigerant.

Incentive or rebate. Money off from the manufacturer or government.

Financing

APR. Annual percentage rate. The yearly cost of borrowing.

Term. How many months you pay for, such as 60 or 84.

Down payment. Money you pay up front to reduce what you borrow.

Amount financed. The amount you borrow after the down payment and trade-in.

Pre-approval. A loan offer from your bank before you shop, which gives you a rate to compare.

PPSA fee. A small fee to register the lender's claim on the car.

Negative equity. Owing more on a loan than the car is worth.

Loyalty rate. A lower rate or bonus for returning customers of the same brand.

Leasing

Capitalized cost. The price a lease is based on.

Residual value. What the car is expected to be worth at the end of the lease.

Money factor / lease rate. The interest cost of a lease.

Kilometre allowance. How many kilometres per year the lease includes. Going over costs extra per kilometre.

Due at signing. What you pay on the day you start the lease.

Buyout. The price to buy the car at the end of the lease.

Trade-ins

Trade-in value. What the dealer offers for your current car.

Tax credit on trade-in. In most provinces, your trade-in value reduces the amount you pay tax on.

Powertrains

Hybrid (HEV). Gas engine plus an electric motor and small battery. Never needs plugging in.

Plug-in hybrid (PHEV). A larger battery you charge from an outlet, for some electric-only driving.

EV / BEV. Battery-electric vehicle. No gas engine.

CVT. Continuously variable transmission. A smooth, efficient automatic with no fixed gears.

AWD / FWD / 4WD. Which wheels the engine drives. See AWD vs. FWD.

L/100 km. Litres of fuel per 100 km. Lower is better. See What is good fuel economy?

Warranty and protection

Bumper-to-bumper / comprehensive warranty. Covers most parts of a new car for a set time or distance.

Powertrain warranty. Covers the engine, transmission, and drive system, usually for longer.

Extended warranty. Optional coverage after the factory warranty ends.

Gap insurance. Covers the difference between what you owe and what insurance pays if the car is written off.