Back to blogUpdated · 5 min read

Terms you’ll want to know if you’re buying a car


Learn key terms, from VIN to loan options, to help you make an informed decision when buying a car.

You don’t know what you don’t know – and that’s ok! Buying a car involves sifting through an array of terms and phrases that can sometimes just go over your head. We want to help you understand all the terms and jargon that come with owning a car because it’s likely to be one of the most expensive things you buy! Let us know if we missed anything.

Terms you need to understand before you buy your car

VIN (Vehicle identification number) – Think of the VIN as the car's unique fingerprint. A VIN check can reveal a lot, including any major accidents, service history, and even if it was ever reported stolen. To run a check select one of the third-party services (e.g. Transunion, Carfax, Vehicle check) or consider contacting your insurance company or ask the dealership for a history report.

Service history – This is essentially the car's health diary. Regular entries? That's a good sign it's been well looked after and can give you a heads-up about potential future issues.

Ownership history – How many hands has this car passed through? A car with fewer owners is often a steadier and potentially more reliable drive.

Accident history – Has the car been in a fender bender or a more serious crash? Knowing the extent of any damage and repairs can help you avoid costly surprises down the road.

Recall information – Sometimes cars have manufacturing defects that lead to recalls. Check if the car was ever recalled and, more importantly, if any recall repairs were made.

Mileage verification – Clocking (illegally tampering with the odometer) is a real issue. Verify the mileage is consistent with the car's service records and condition.

Now, let’s decode the pricing jargon you might come across

Retail value – Retail value is the average amount that a car dealership would sell your car for.

Market value – Market value is the amount that you would sell your car for if you were to sell it privately. A bunch of factors like your service history, mileage on the car or the age of the car are taken into consideration.

Trade-in value – Trade-in value is the amount a car dealership would pay you for your car if you were to trade it in. This is usually the lowest of the three values for which you can insure your car.

Financing your car? You’ll need to understand interest rates, deposits, and loan terms

Interest rate – An interest rate is what you pay extra for borrowing money from the bank to buy a car. It will be shown as a percentage of the amount you borrowed. Though it may seem small, it can really add up and increase the total price of the car over time.

Deposit – This is the money you pay upfront, often expressed as a percentage of the car's price. Paying more at the start can lower your monthly payments and the total interest you pay.

Pre-approval – Getting pre-approved for a car loan means a bank agrees to lend you a certain amount of money with a set interest rate before you start looking for a car. This can help you know how much you can spend and may help you get a better deal.

Credit score – Banks look at your credit score to see how likely you are to pay back a loan. Usually, a higher credit score means you can get a lower interest rate because it shows the bank you're less risky to lend to.

Loan term – How long you take to pay back the loan can change how much interest you pay. Shorter loans usually have less interest than longer ones, but this means you'll have higher payments each month.

Lease – Leasing a car means paying to use it for a set period. It's often associated with lower monthly payments but comes with mileage limits and conditions on car condition.

Residual value – Residual value, particularly relevant in car leasing, is the expected value of a car at the end of a lease agreement. It affects monthly payment calculations and the buyout price if you choose to buy the car after the lease term.

Balloon payment – A big payment you make only once at the end of the loan. It's a lot more than your usual monthly payments and clears what's left of the loan. This lets you pay less each month, but you'll need to pay a large amount at the end.

Equity – When buying, equity refers to the difference between the car's worth and what you still owe. You’re aiming for the car to be worth more than the loan balance.

Terms you need to understand when it comes to insurance and warranties

Comprehensive car insurance – Comprehensive car insurance covers damage to your car from accidents, Mother Nature or vandalism. It also includes cover for theft and fire. It's more extensive than third-party liability insurance, offering peace of mind that most risks to your car are covered.

Third party liability – Third party liability insurance covers any damage your car may cause to other people’s property. However, it does not cover any damage to your own car. It's crucial to protect yourself against claims that can arise from accidents that are said to be your fault, potentially saving you millions.

Shortfall cover – If your car is totalled or stolen, shortfall cover, also known as gap cover or top-up cover, covers the difference between what your insurance company pays and what you owe on your loan. It's something you should consider especially if you are financing your car or if you did not pay a deposit.

Extended warranty – This extends the warranty coverage on your car beyond the manufacturer's warranty. While it offers peace of mind, evaluate the cost against potential repairs to decide if it's worth it for you.

Finally, some terms you need to understand once you own your car

Depreciation – The value of a new car decreases the moment you drive it off the lot. Depreciation is the rate at which your car loses value over time.

Total cost of ownership (TCO) – This is the big picture — depreciation, insurance, keeping it running, fuel, and taxes. It helps you see beyond just the sale price.

Service plans – Service plans pay for your car's regular check-ups, including parts, work done, and taxes, for a certain time or number of kilometres, whichever comes first. In South Africa, where maintenance costs can vary widely, these plans are popular. They let you pay today's prices for future services, helping you stick to your budget without worrying about prices going up suddenly.

Maintenance costs – Maintenance costs are the money you spend to keep your car running well, like regular check-ups, fixing things, and changing parts that wear out. In South Africa, where road conditions can vary a lot, it's important to plan and save money for these costs. Knowing how much you might spend on keeping different cars in good shape can help you decide which car to buy. You have to think about what features you want in a car and how much you're willing to spend to take care of it.

Remember, understanding the jargon is the first step in making informed decisions and negotiating the best deal for your new car. Buying a car should be exciting, not overwhelming. To help make it even easier, we’ve made car insurance all online. Get a comprehensive car insurance quote all online in under 90 seconds.


You might also like


Old skills. New opportunities.

Can a lawyer change the sporting world? How about a statistician influencing your taste in wine? When new skills are applied to old problems, the results can be pure magic.

3 min read

What businesses should we be supporting in 2019?

The way in which consumers are supporting companies today is shifting. And that’s because trust in big corporations is eroding and social media leads the talk in reputation. Consumers are becoming more inclined to support businesses that support more than just their profit margins.

5 min read

10 things I wish I’d known before moving into my own place

Nothing says adulting quite like moving into your own place. So a few of us at Naked have shared some things we wish we had known when we first made the big leap.

4 min read