If you’ve bought a car before, you’ve experienced the “F&I office.” Shrouded in secrecy, the F&I office, which stands for Finance and Insurance, is one of the greatest profit making centers within a car dealership. F&I Managers can be some of the highest paid employees at a car dealership because they generate so much profit for the business.
That being said, many car buyers are confused when they enter the F&I office. The paperwork, the many products, a good F&I Manager’s sales tactics … They all make it challenging to get in and out of the dealership without having purchased something while in the F&I office.
We also wrote a guide for general car buying jargon that you might also enjoy: The Car Buyer’s Glossary of Terms, Lingo, and Jargon
One way you can feel more confident and comfortable in the F&I office is by understanding the jargon, slang, and lingo used by F&I Managers. That’s why we prepared this guide, our Dealership F&I Office Glossary of Terms.
Please bookmark this page to reference when you are at the dealership in the F&I office. Please also consider sharing this page on social media so that your friends and peers can be more knowledgeable about the car buying process as well.
Without further ado, let’s dive in!
Finance
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Buy rate (APR)
The buy rate is the interest rate that a financial institution quotes to a dealer when you apply for financing through the dealership. Your dealer may offer you an interest rate that is higher than the buy rate, which is referred to as the sell rate. Ask the F&I Manager, “Are you quoting me the buy rate?” When negotiating your financing options through a dealership.
Sell rate (APR)
The sell rate is the interest rate that the dealership quotes you for your dealer-arranged financing. When you submit a credit application through a car dealership, the dealer has the discretion to charge you more than the buy rate. Always ask the F&I Manager if your interest rate is the “buy rate” or the “sell rate”.
Approval
The approval is a document from a financial institution that shows you have been approved for a loan with specified terms and conditions. When you submit a credit application through a dealer, they are not required to show you your approvals from the various financial institutions they contacted on your behalf. You should feel comfortable to ask to see your “approval” so that you can confirm they are not marking up your loan.
3 bureaus
Equifax, Experian and TransUnion are the 3 credit reporting bureaus. Each company gathers data about your credit use to determine your creditworthiness and credit score.
Prepayment penalty
A prepayment penalty is a fee charged on an auto loan for paying off the entire balance of the loan before the loan term is complete. Most auto loans do not include prepayment penalties, however some can. Prepayment penalty protections vary from state to state, so be sure to understand if your financing option has a prepayment penalty or not before signing the dotted line.
VSI fee
VSI stands for Vendor’s Single Interest, and this fee may show up on your final bank contract when purchasing a vehicle. Typically no more than $100, the VSI fee is a cost passed on to you by the lender that protects the bank in the event that the vehicle they are providing financing for is damaged or destroyed.
Base payment
The base payment is the monthly payment you will be making on your vehicle without any additional add-ons or ancillary products. Ask your F&I Manager what your base payment is when finalizing your car deal.
Credit application
The credit application is a form that is typically completed online that car dealerships use to secure loan options on your behalf.
Subvented rate
A subvented rate is an interest rate that is lower than you could receive elsewhere because it is subsidized by the manufacturer in an effort to sell more cars. Zero percent financing offers are an example of subvented rate programs from auto manufacturers.
On approved credit
When you are negotiating a deal with a dealer, the salesperson may quote you monthly payments. You may see the salesperson or sales manager write “on approved credit” next to it. It simply means that this payment is only applicable subject to credit approval.
Lease
Money factor on a lease
The money factor is the basis for the interest portion of your lease. Money factors can be converted to interest rates by multiplying the money factor decimal by 2400.
Due at signing on a lease
The amount you will have to pay out of pocket upon initiating a lease. Many car buyers look for “zero down” leases, however a typical lease will include the first lease payment due at signing.
Residual value
The residual value is the percentage of the vehicle’s original MSRP that the leasing company expects the vehicle to be worth at the end of the lease term. The residual value is not negotiable and is set for each vehicle at each term (i.e. 36,000 miles and 36 months will have different residual value than 24,000 miles and 24 months). Many leasing companies rely on Black Book and ALG to determine their residual values.
Disposition fee
The disposition fee is a fee charged by the lease company to offset expenses associated with the lease return process. The lease disposition fee is typically waived if you lease another vehicle from the same leasing company.
Acquisition fee
The acquisition fee is a fee charged by the leasing company at the inception of the lease. This fee is not negotiable and it is set by the leasing company. The acquisition fee typically covers the leasing company’s expense to purchase GAP Insurance on the vehicle.
Insurance Products
Extended warranties
Extended warranties are sold by manufacturers or car dealers, and they provide elongated warranty coverage on a vehicle. Extended warranties can only be sold by the manufacturer or the dealership selling a vehicle. Most extended warranties last for a short period of time, while longer coverages come in the form of vehicle service contracts. Read the full extended warranty guide here.
Vehicle service contracts
Vehicle service contracts are commonly referred to as extended warranties, however they are different. Vehicle service contracts are a contractual agreement between two parties (the contract provider and the customer), where the contract provider agrees to pay for any future repairs as stipulated in the contract. Many consumers purchase vehicle service contracts when thinking they are purchasing an extended warranty. Read the complete vehicle service contract guide here.
GAP Insurance (Guaranteed Asset Protection)
GAP insurance is a policy that protects car buyers in the event their vehicle is totaled and they owe more money on the loan than the vehicle is worth. For example, let’s say you bought a brand-new Honda Civic for $20,000. You financed it and bought GAP insurance. The second you drive off the lot, you’re in a major accident that totals your car. Your insurance company pays you $15,000 for the totaled vehicle, but what about the remaining $5,000 that you owe? That’s where GAP insurance comes in. GAP insurance will cover the $5,000, plus it should (depending on your policy) cover any deductibles involved. It is advisable to purchase GAP insurance from your auto insurer or bank, but typically not from a dealership since they mark it up significantly. Read the complete GAP Insurance guide here.
Dent and ding coverage
Dent and ding coverage is a common insurance product sold to car buyers that provides protection from dents and dings. If you live in a city and you are afraid your vehicle may get a few small dents, dent and ding coverage would cover the cost of repairs instead of you paying out of pocket.
Tire and wheel coverage
Tire and wheel coverage is another common insurance product that pays for repairs and replacements to your tires and wheels. Be sure to ask if the coverage also covers cosmetic issues with the rims.
Exterior and interior protection
Exterior and interior protection products are add-ons that car dealers apply to their inventory without you asking. These protection products are already installed, but that doesn’t mean you can’t negotiate them.
Life insurance
If you pass away while you have your loan, this insurance will pay off the loan so that your estate does not have to. Although infrequently sold nowadays, you may come across this in an F&I office.
Accident and health insurance
Accident and health insurance provides coverage if you become disabled and cannot make your car payment. This is another product that is infrequently sold but you may come across it at a car dealership.
Excess wear and tear coverage (lease only)
Excess wear and tear coverage is only applicable for a lease and covers cosmetic issues at the time of lease return.
Lojack or similar tracking device
Lojack, and other anti-theft devices are frequently added to vehicles sold at a car dealership. Remember that these anti-theft products are taxable, which means they are negotiable!
Flat cancel
The period of time from the date of purchase of an insurance product where you will receive a full refund. After the flat cancel date you will receive a prorated refund. You can ask your F&I Manager, “What is the flat cancel on the tire and wheel protection?”
Negotiation
Menu-selling
Menu-selling is a sales methodology used by F&I Managers to present different products that can be sold in conjunction with the purchase of your vehicle. Menu-selling is prolific in the F&I office.
A two term menu is a menu that shows you how ancillary products would impact your payments for two different loan terms.
What is cancelable
Nearly every product sold in the F&I office is cancelable. What does this mean? It means that if you feel you made a mistake by purchasing a vehicle service contract, you can cancel it and receive a refund. Read your contracts carefully, but don’t let a F&I Manager tell you otherwise … Insurance products are nearly all cancelable.
Paperwork
Motor vehicle power of attorney
The motor vehicle power of attorney form allows the dealership to transfer ownership of the vehicle from the seller (dealer) to the buyer (you).
Application for title and registration
This is paperwork from the state that has all of your vehicle and owner information so that the state can provide you with your title, registration, and license plates
Mileage statements
This is a form that lists the vehicle by VIN and the exact miles that are on the vehicle when it is either traded-in or purchased.
We-owe
A form that dealership staff will complete and associate with your deal for anything the dealership owes the customer. For example, floor mats that the dealership owes you as part of the car deal.
You-owe
A similar form to the “we-owe” that lists anything the customer owes to the dealership. For example, the second key for a trade-in.
Errors and omissions statement
A form the customer signs stating that they agree to come back and redo paperwork if there are any errors or omissions at the time of completion.
Menu disclosure
A form you will sign in the F&I office stating that you were made aware of all the products for sale in the F&I office.
Misc.
Payment grace period
How many days the bank gives you from the due date where they won’t charge you a late fee.
Trade payoff date
When you are trading in a vehicle and you have an existing loan, you will need to request a payoff amount from the financial institution. The payoff amount has a “good until” date, this date represents the date by which the payoff must be made.
Days to first payment
When you originate a new loan you can choose to have your first payment made anywhere from 30 to 45 days from the date of origination.
Signer and co-signer
The signer is the main obligor on a loan. The co-signer is the secondary obligor. If the signer does not make their payments the co-signer is on the hook for the loan.
Personal guarantor
A personal guarantor is the person who guarantees a loan, oftentimes this is required for a business purchase.
Soft pull
Soft credit inquiries do not affect your credit score and are typically used to prequalify for an auto loan.
Hard pull
Hard credit inquiries typically require your authorization and do impact your credit score. Financial institutions run a “hard pull” to make a final decision on your loan application.
What did we miss? Please comment down below and let us know. We’ll update this page as requests are made. Thank you for being a part of the CarEdge community!
Thanks for the info. I’m new to this site. In RI/MA, the dealerships are charging a “Documentation Fee for buying in my case, 2021 Honda CR-V, EX L. It ranges from $399 – $499. What is this for and is it negotiable?
Greg, doc fees are negotiable. They’re simply a profit center for the dealership. More on that here: https://wordpress.caredge.kinsta.cloud/guides/car-dealer-fees/
Thanks guys! I love your videos and your helpful advice. I will be in the market soon, and will try using your new site.
Hey Zach and Ray
I enjoy your videos and role playing demonstrations and am learning so much about the car business. I’m not in the immediate market for a car (we just relocated from Washington State to Florida), but doing research it is appalling what the dealer fees are in this state vs. what I paid in Seattle. Below is a draft response that I would like to try on an F&I salesman (they don’t deserve a manager title, in my opinion) and wanted to see if this would work. Let me know what you think. Thank you so much
Here’s what I’d like to say to the F&I Manager (Salesman) and would like to see if this is a sound rebuttal to set the stage for having him or her offset the fee with an equivalent reduction in sales price.
Let me understand this. You are charging me and additional $900 to process the paperwork associated with my car purchase, correct??? (YES) Let me ask you, what are your labor charges in your shop?? ($150/hour)
So what you’re telling me is that your back office person is generating the equivalent of about 6 hours of shop charges to electronically transfer my data and the car data to the DOL and to your bank from a dealer management system that automatically interfaces with these outside parties (DOL; credit reporting; Bank etc.)? Isn’t that (mathematically) correct?
How do you justify this?
I’ll also bet that you pay your back office person much less than your shop mechanics for generating much more revenue per hour than your mechanic and I’ll bet your back office person is female and the majority of your mechanics are male? Isn’t that a problem?
At that point I would tell him/her to deduct the “unjustifiable” fee from the sales price before I agree to continuing with the deal or I’ll walk away.
Thank you!
Tom Stoeckle
Tomstoeckle@comcast.net
425-985-1411
Great content, very helpful. Thanks
Thanks for the cheat sheet ill be studying all week for my appointment with the dealer next week
I’ve been doing some research on the Chrysler Pacifica Hybrid Limited and have found some strange anomalies on the window stickers available through both Chrysler and the dealer web pages.
I’ve found 3 different base prices ($45,620, $45,370, and 45,845)
One sticker shows a charge of $2995 for a tri-pane sunroof, which is standard equipment on that trim level.
Other sticker show either $1595 or $1895 for the safety sphere group.
All of these stickers were from Limited trim vehicles.
You guys are a Hoot! Love your videos and hope you do indeed get the NPR gig as the replacement for Car Talk.
This would be awesome if you replaced Car Talk on NOR.
I put in a request to NPR Story Lab to check you guys out….every little bit helps. So many people can learn a lot from you both.
This is gold. Thank you for this. I’m learning a lot. A single mom here. I have a car, but I didn’t buy it. Planning to get a new vehicle as my current one is 15 years old and having some issues. This is so helpful. I appreciate it. More success to all of us!
You are incredible! Thank you for all of your knowledge! It truly helps us who don’t come from the car world but you provide a way to empower others!
Thanks for the information. Wish I had this list before I bought my vehicle! I have a question. Who authorized a “Hard Pull”? Is it the dealership? Since I have purchased my vehicle my score has dropped significantly because other companies are running reports without my permission. It’s awful !
Thank you for this glossary. I suggest the following:
1. VSI fee would be clearer if you explained that it stands for “Vendor Single Interest” and that it is insurance purchase — in this case by a lender, to protect itself only. Most insurance protects everyone with an interest — the buyer too. But VSI insurance protects only the the lender against damage, loss and even the cost of recovering the car if it needs to be possessed. Thus, if the VSI insurance ever pays out, none of it goes to the buyer. Many states prohibit lenders from passing on the cost of VSI insurance, and you can see why. Why should be buyer pay for insurance that will never benefit the buyer, only the lender. More interesting information at Investopedia, if you are interested.
2. Vehicle Service Contract. This sentence portion is misleading. ” where the contract provider agrees to pay for any future repairs as stipulated in the contract. ” I suggest you re-word it. “The contract provider — often called a contract “administrator” agrees to pay only for those future repairs covered by the contract. Vehicle service contracts almost always limit the liability of the contract provider with exclusions and co-payments or deductibles.” and also add, ” Dealers push hard to sell vehicle service contracts, they are the primary profit center of the dealer’s finance and insurance office. Dealers heavily mark up the cost of the vehicle service contract — often 100% or more — over the sum quoted to the dealer by the contract provider.
3. Acquisition fee. “This is a non-negotiable fee charged by a lender to set up a loan. Beware, there are dealers who will attempt to mark up this lender’s acquisition fee as an additional profit source for the dealer.” Your explanation as it stands implies that the lessee will somehow benefit from the GAP insurance purchased by the lessor. I wonder if you can verify this. I can find source claiming that this is so, and there is no way for the lessee/consumer to know what the lender does with this fee. They spend it on golf outings or shareholder dividends, for all we know.
4. Menu Selling ” Menu-selling is prolific in the F&I office.” I think you mean “menu seiling is widespread/commonplace/almost always used/ in dealer F&I offices. “Prolific” means either that something reproduces rapidly (as in rabbits) or is found everywhere. But that’s not what you said or what you meant. Menu selling does not reproduce itself rapidly in an F&I office, nor is it found everywhere in an F&I office. Rather, almost all F&I offices use menu selling as a form of manipulation to convince buyers to buy high-cost financial products of — for the price — dubious value.
Signer and Co-signer. A lender may require a co-signer if it is not convinced the buyer is credit worthy — at least for the amount being financed. A co-signer is equally liable for the entire amount of the debt, whether or not the signer pays. As a practical matter, the lender may contact the signer first, but the co-signer has equal liability from day one. See, for exxample the website of the federal Consumer FInancial Protection Bureau, which says, ” A co-signer is a person who is obligated to pay back the loan just as you, the borrower, are obligated to pay. ” See this link:
https://www.consumerfinance.gov/ask-cfpb/why-might-i-need-a-co-signer-in-order-to-get-vehicle-financing-en-811/#:~:text=A%20co%2Dsigner%20is%20a,loan%20if%20you%20do%20not.&text=A%20co%2Dsigner%20is%20a%20person%20who%20is%20obligated%20to,borrower%2C%20are%20obligated%20to%20pay.
That’s wny it is so legally dangerous to be a co-signer. The co-signer does not own or possess the car, but the co-signer is just as obligated to PAY for the car as the person who boughtit. The lender won’t mess around chasing down a recalcitrant borrower. The bank will promptly demand payment from the co-signer. That’s why the bank wanted a co-signer to begin with.
By the way, the actual legal terms are “maker and co-maker.” An arrangement whereby a secondary person is liable only if the primary person does not pay is a “guarantor.” This has nothing to do with a vehicle’s warranty. A guarantor is a person who undertakes to pay another’s debt if the debtor does not pay on demand of the lender.
Hello: I am trying to negotiate the purchase of a new 2020 Mustang GT. At my request, the dealer provided me with the invoice. The dealer is willing to sell me the car at his invoice price less the HB, FPA, and the AA, and even more. I am recovering from poor credit and I am concerned about qualifying for a loan. I just paid of an $18K loan on my last purchase in seven months which had an interest rate at 23%. I have 20% down payment saved for the new car purchase. With a 620 credit score, do you have any advice on where to finance the new car purchase?
Is there a different credit score for auto loans?
REspectfully,
Tell
When in the F&I office and ask for the Buy Rate, should I insist that my loan be at that rate? Or should I expect them to mark it up a little more than the Buy Rate but less than the previously quoted Sell Rate?
I would like to see an explanation of the arbitration form that most dealers require as part of the sale of the car. What it seems to do is prevent the buyer from exercising his rights to go to court over a dispute with the dealer by forcing binding arbitration on the buyer. What happens if I refuse to sign the form?