Automotive Terms 101: The Used Car Edition

July 9th, 2021 by

A close up shows a pile of change and two toy cars.

It’s time to shop for a used car, but you find yourself overwhelmed by an entirely new language of automotive terms. What does depreciation mean? Where can you find the VIN or access the vehicle history report? From understanding down payments and fair market value to finance rates, VIN numbers, vehicle history reports, and more, the team here at has you covered as your leading used car lot in Indianapolis. Here’s a list of some of the most common terms you’ll run into as you shop for a used car.


What we like to call “the Big D” in the automotive world, depreciation is an unavoidable aspect of car ownership. But what is it? It’s the decrease of a vehicle’s value over time.

A new car loses up to 30 percent of its value within its first year on the road. By the fifth year, most vehicles have lost over 60 percent of their initial value. You can avoid this drastic loss in value by shopping for a used car, which means the first owner takes the largest depreciation hit and ultimately leaves you with more money in your wallet over time.

Down Payment

As you shop for a used car, you’ll need to consider how you plan to pay for the vehicle. Do you want to pay cash upfront, or do you want to finance? If you plan to finance the vehicle, you’ll want to factor in a down payment. This is the money you put down upfront to reduce the total amount that you’re financing. The larger the down payment you make, the smaller amount that you’ll finance, and the lower your monthly payments.

Fair Market Value

The fair market value is important in several regards. If you’re planning to trade in your current vehicle, then you’ll want to know the fair market value of your vehicle in its current condition. You can use online services like Edmunds and Kelley Blue Book to input your trade-in information or the vehicle identification number of the vehicle you want to purchase to determine its fair market value. Once you do this, you can determine if the offer on your trade-in is reasonable or if the price on the used vehicle you’re wanting is too high.

Finance Rate

If you decide to finance a vehicle, you’ll hear words like “interest” and “finance rate.” The lender (the bank or organization giving you the money) will not loan you the money for the vehicle free and clear. Instead, the lender will charge you interest on the amount that you borrow. This means that your loan is made up of the principal (the cost of the vehicle) and the interest (the cost of borrowing the principal).

One thing to remember is that your monthly loan payments do not go entirely to paying down the principal. Your payment first goes to any late fees that you’ve accrued, then the interest, and then the principal. To pay down your principal faster, you can pay more than your monthly payment and ask your lender to apply the overage directly to the principal.

Maintenance or Service Contract

Shopping for a used car is a great way to save money, but many people worry that they won’t have access to the same maintenance or warranty coverage that new vehicles offer. Fortunately, this isn’t the case, thanks to maintenance or service contracts. These contracts are usually purchased upfront and can include everything from routine maintenance to mechanical or extended warranties from the manufacturer that are designed to give you confidence in your purchase.

A close up shows the odometer of a used vehicle.

Odometer Reading

Looking at the odometer isn’t a huge concern when you’re shopping for a new vehicle because most new cars are straight from the factory and have only logged a few miles. However, when you’re shopping for a used vehicle, you’ll want to pay close attention to the odometer reading or mileage. While many buyers think that low-mileage vehicles are better or more appealing, this isn’t always the case and can mean that the vehicle was rarely driven. If this is the case, you run the risk of buying a low-mileage vehicle with components that are brittle from infrequent use, which can pose even more problems down the road.


One of the great things about shopping for a used car with us is that you can pre-qualify for a loan before you start your search for the perfect vehicle. But what does it mean to pre-qualify? Long before you sign any contract or agreement, you can determine your eligibility for a loan with a lender. This can give you a better idea of what you can afford and the confidence that you’ll have the financial support needed to purchase the vehicle.


Whether you choose to pay for your used vehicle in full upfront or apply for a loan, you still own the vehicle. If you pay for the vehicle in full, you own the vehicle outright and will receive the title to the vehicle. The title is the legal, government-issued document that proves that you own the car. When you take out a loan, the lender holds the title until the loan is paid in full. Once the loan is paid, you’ll receive the title and own the vehicle outright.

Trade-In Value

Trading in your vehicle on a newer model is a great way to save even more money when shopping for a used car. We mentioned the fair market value of a vehicle, and that applies to your trade-in as well. The value of your trade is typically below the vehicle’s wholesale market value, which means that a dealership will pay less than what you could privately sell the vehicle for yourself. Because it’s often a hassle to sell a vehicle privately, most consumers take the trade-in offer and apply it to the vehicle they’re purchasing.

Vehicle Identification Number

The gateway to learning everything you need to know about a vehicle is known as the VIN or the vehicle identification number. This 17-digit number is unique to every vehicle and is located under the windshield and inside the driver’s door. So, what’s so special about the number?

You can use the VIN to determine that the used vehicle is not fraudulent. In other words, you can decode the VIN to make sure it matches the actual vehicle. There are many online tools to help with this, but, generally speaking, the first digit tells you the country where the vehicle was manufactured. The second digit tells the manufacturer, and the 10th digit tells you the year. You can also use the VIN to look up any manufacturer recalls and determine the vehicle’s fair market value.

Vehicle History Report

Other than taking a test drive, another great tool to finding a reliable used car is reviewing the vehicle history report. The vehicle history report gives you a clear picture of the vehicle’s owner history as well as any major repairs, maintenance, or title issues like salvage, flood, or electrical damage. This information is vital to purchasing a reliable used car that will serve you for many years to come.

A couple is shown smiling in a used car while shopping at a used car lot in Indianapolis.

It’s Time to Shop

Now that you know the basic automotive terms, it’s time to start shopping for the perfect used car for your driving needs. As you start your search, remember the many benefits that buying a used car has to offer, like avoiding the rapid rate of depreciation that befalls every new vehicle. Then, when you find the vehicle of your dreams, be sure to get the VIN number and do a quick search to determine its fair market value. From there, learn more about your trade, ask for the vehicle history report, and get pre-qualified for a loan. What’s even better is you can do all this from the comfort of your couch when you shop with!