Car Buying Glossary
Learn the terminology you need to navigate the car buying process with confidence. From APR to VIN, we explain it all.
35 terms defined
Amortization
The process of paying off a loan through regular payments over time. Each payment covers both interest and principal, with early payments being mostly interest and later payments being mostly principal.
Learn more: Leasing vs Financing: Which Option Is Right for You?AMVIC
Alberta Motor Vehicle Industry Council. Alberta's regulatory body that licenses car dealers, salespeople, and automotive businesses. AMVIC protects consumers by enforcing fair dealing standards and handling complaints.
Learn more: OMVIC, AMVIC & Consumer ProtectionAPR (Annual Percentage Rate)
The yearly interest rate charged on a loan, including fees and other costs. In Canada, lenders are legally required to disclose APR, making it easier to compare loan offers. Always compare APR rather than just interest rates.
Learn more: Getting Pre-Approved for a Car Loan in CanadaBi-weekly Payments
Paying every two weeks instead of monthly. This results in 26 half-payments per year (equivalent to 13 monthly payments), helping you pay off your loan faster and save on interest.
Learn more: Leasing vs Financing: Which Option Is Right for You?Canadian Black Book
Canada's trusted source for vehicle valuations. Used by dealers, lenders, and insurance companies to determine fair market prices for new and used vehicles. Useful for negotiating trade-in values.
Learn more: Negotiation Strategies for First-Time BuyersCarFax/CarProof
Vehicle history report services showing accidents, ownership history, service records, and odometer readings in Canada. Essential for verifying used car history before purchase. CarProof is now part of CarFax Canada.
Learn more: How to Inspect a Used Car Before You BuyCertified Pre-Owned (CPO)
Used vehicles that have been inspected, reconditioned, and certified by manufacturers or dealers. CPO vehicles typically come with extended warranty coverage, roadside assistance, and meet strict age/mileage requirements.
Learn more: New vs Used: Which Should You Buy?Collision Coverage
Insurance that pays for damage to your car from accidents with other vehicles or objects, regardless of who is at fault. Usually required by lenders when financing or leasing a vehicle.
Learn more: Understanding Car Insurance in CanadaComprehensive Coverage
Insurance covering non-collision damage to your vehicle, including theft, vandalism, fire, flooding, hail, falling objects, and animal strikes. Often required by lenders for financed vehicles.
Learn more: Understanding Car Insurance in CanadaCo-signer
Someone who agrees to take responsibility for your loan if you default on payments. Common for first-time buyers with limited credit history. The co-signer's credit is affected by the loan.
Learn more: Getting Pre-Approved for a Car Loan in CanadaDealer Invoice
The price the dealership paid the manufacturer for a vehicle. Knowing invoice price gives you leverage in negotiations. Resources like CarCostCanada provide invoice pricing in Canada.
Learn more: Negotiation Strategies for First-Time BuyersDepreciation
The decrease in a vehicle's value over time. New cars typically lose 20-30% of their value in the first year alone, and about 50% over five years. Depreciation is a major hidden cost of car ownership.
Learn more: New vs Used: Which Should You Buy?Down Payment
The upfront cash payment when buying a car, which reduces the loan amount needed. A larger down payment means lower monthly payments and less interest paid over the loan term. Experts recommend 10-20% down.
Learn more: Getting Pre-Approved for a Car Loan in CanadaF&I (Finance and Insurance)
The dealership department handling financing paperwork, loan arrangements, and add-on products like extended warranties, paint protection, and GAP insurance. This is where dealers often try to upsell additional products.
Learn more: What to Expect at the DealershipGAP Insurance
Guaranteed Asset Protection insurance covers the difference between what you owe on your car loan and the car's actual cash value if it's totaled or stolen. Important if you have little or no down payment.
Learn more: Understanding Car Insurance in CanadaHST/GST/PST
Canadian sales taxes applied to vehicle purchases. HST (Harmonized Sales Tax) combines federal and provincial tax in some provinces like Ontario (13%). GST is the 5% federal tax. PST is provincial sales tax that varies by province.
Lease Buyout
Purchasing your leased vehicle at the end of the lease term for the predetermined residual value. Can be a good option if the car is worth more than the residual value or if you want to keep the vehicle.
Learn more: Leasing vs Financing: Which Option Is Right for You?Liability Insurance
Mandatory insurance coverage for damage or injury you cause to others in an accident. Minimum coverage amounts vary by province, but experts recommend at least $1-2 million in liability protection.
Learn more: Understanding Car Insurance in CanadaLien
A legal claim on a vehicle by a lender until the loan is fully paid off. The lien holder has the right to repossess the vehicle if payments are not made. Always check for liens when buying used.
Learn more: How to Inspect a Used Car Before You BuyMoney Factor
The leasing equivalent of an interest rate, expressed as a small decimal (e.g., 0.00250). Multiply by 2,400 to convert to approximate APR. A money factor of 0.00250 equals about 6% APR.
Learn more: Leasing vs Financing: Which Option Is Right for You?MSRP
Manufacturer's Suggested Retail Price, also known as the sticker price. This is the starting point for negotiations, not the final price. Most buyers pay less than MSRP on new vehicles.
Learn more: Negotiation Strategies for First-Time BuyersNegative Equity
Owing more on your car loan than the vehicle is currently worth, also called being "underwater" or "upside down." Common with long loan terms, small down payments, or high depreciation vehicles.
Learn more: Leasing vs Financing: Which Option Is Right for You?OMVIC
Ontario Motor Vehicle Industry Council. Ontario's regulatory body that licenses and regulates motor vehicle dealers and salespeople. OMVIC protects consumers by enforcing standards, handling complaints, and providing compensation for victims of dealer fraud.
Learn more: OMVIC, AMVIC & Consumer ProtectionOut-the-Door Price
The total amount you pay to drive away, including the vehicle price, all taxes, fees, and any add-ons. Always negotiate based on out-the-door price rather than monthly payments.
Learn more: Negotiation Strategies for First-Time BuyersPDI (Pre-Delivery Inspection)
A thorough inspection performed by the dealer before delivering a new vehicle to ensure everything is working correctly. PDI fees are typically non-negotiable and range from $1,500-2,500.
Learn more: What to Expect at the DealershipPre-approval
Getting approved for a specific loan amount and interest rate before shopping for a car. Pre-approval gives you negotiating power, sets your budget, and lets you compare dealer financing offers.
Learn more: Getting Pre-Approved for a Car Loan in CanadaPrincipal
The original loan amount borrowed, excluding interest and fees. As you make payments, the principal decreases while equity in the vehicle increases.
Learn more: Leasing vs Financing: Which Option Is Right for You?Residual Value
The predicted value of a leased vehicle at the end of the lease term, set at the time of signing. Higher residual values mean lower monthly lease payments. The residual is what you'd pay to buy the car at lease end.
Learn more: Leasing vs Financing: Which Option Is Right for You?Subprime Lending
Loans for borrowers with poor or limited credit history, typically with higher interest rates (often 15-29% APR). While accessible, subprime loans can be very expensive over the life of the loan.
Learn more: Getting Pre-Approved for a Car Loan in CanadaTerm
The length of a loan or lease, measured in months (e.g., 36, 48, 60, 72, or 84 months). Longer terms mean lower monthly payments but more total interest paid. Experts recommend 60 months or less for car loans.
Learn more: Leasing vs Financing: Which Option Is Right for You?Title
The legal document proving vehicle ownership. When you finance a car, the lender holds the title until the loan is paid off. Always verify clear title when buying used.
Learn more: How to Inspect a Used Car Before You BuyTrade-in
Selling your current vehicle to the dealer as partial payment for a new one. Convenient but often yields less than private sale. Get trade-in quotes before negotiating to know your car's value.
Learn more: Negotiation Strategies for First-Time BuyersUVIP (Used Vehicle Information Package)
Required in Ontario when selling a used vehicle privately. The UVIP shows registration history, lien information, and fair market value. Sellers must provide this package; buyers should review it carefully.
Learn more: OMVIC, AMVIC & Consumer ProtectionVIN (Vehicle Identification Number)
A unique 17-character code identifying every vehicle. Used to check vehicle history, verify specifications, and track recalls. Found on the dashboard, door jamb, and registration documents.
Learn more: How to Inspect a Used Car Before You BuyWarranty
A manufacturer's promise to repair or replace defective parts for a specified period. New car warranties typically include bumper-to-bumper (3-5 years) and powertrain (5-10 years) coverage.
Learn more: New vs Used: Which Should You Buy?Ready to Start Learning?
Now that you know the terminology, dive deeper into our comprehensive guides and use our calculators to plan your purchase.