Auto Sales & F&I Knowledge

01Auto Financing Basics: APR, Money Factor & Out-the-Door Price

APR (Annual Percentage Rate) is the standard way loan interest cost is expressed; the money factor is the lease equivalent, shown as a small decimal (e.g., 0.0025) — multiplying it by 2400 approximates the equivalent APR. The 'out-the-door' price is the total the customer actually pays: vehicle price plus taxes, title, registration, and dealer fees.

02Trade-in Equity & Negative Equity

Positive equity means the trade-in is worth more than what's owed on it, reducing the new vehicle's cost. Negative equity ('upside down') means more is owed than the trade is worth; that shortfall is typically rolled into the new loan, increasing the amount financed.

03GAP Insurance

GAP (Guaranteed Asset Protection) insurance covers the difference between a totaled or stolen vehicle's insurance payout (actual cash value) and the remaining loan balance — a gap standard auto insurance doesn't cover. It does not reduce the loan balance otherwise.

04Manufacturer Warranty vs. Extended Warranty

A manufacturer's warranty comes included with a new vehicle and covers defects for a set time/mileage at no extra cost. An extended warranty (vehicle service contract) is a separately purchased, optional product extending coverage beyond the factory warranty.

05Credit Applications & Adverse Action Notices

Under the Equal Credit Opportunity Act (ECOA), when a credit application is denied or offered on less favorable terms, the applicant must be notified of the specific reasons or their right to request them — the 'adverse action notice.'

06Odometer Disclosure Requirements

The federal Truth in Mileage Act requires a written odometer disclosure statement at the time of sale for most vehicles under 20 model years old, to combat mileage fraud; vehicles over that age and those with a GVWR over 16,000 lbs are generally exempt.