04 Oct

The following is a list of terms and formulas that are used in the basic math calculations performed every day in the operation of a BHPH dealership.  Many of these terms have extensive legal and accounting implications. These definitions are not meant to give you the complete legal definitions or interpretations. The purpose of this list is to illustrate a common language that used in this setting. Some are very basic while other are more complex.


Sale Price: The price at which a vehicle is sold.

Purchase Price: The original purchase price paid for a vehicle before it is put into the inventory. Any money spent on a vehicle after purchase is considered reconditioning.

Reconditioning Expenses: All expenses posted to a vehicle after the initial purchase.

Total Inventory Cost: The purchase price of a vehicle plus all additional reconditioning expenses and other expenditures related directly to the vehicle.

Actual Cash Value (ACV): The price that could be expected if the vehicle in question were to be sold wholesale today. This price may not be the purchase price or the total inventory cost of the vehicle.

Trade Allowance: The amount of money the dealership is willing to pay to purchase a customer’s current vehicle.

Trade Difference: The sale price minus the trade allowance.

Taxable Amount: The dollar amount that is subject to all local and state taxes. This amount varies by state. In many states sales taxes are computed on the trade difference. In others the total sales price of a vehicle is subject to tax. In still other states there is no sales tax on used vehicles sold for less than a stated dollar amount. Contact your department of motor vehicles for specifics.

Trade Payoff: The amount still owed by the customer before all liens on their vehicle are released.

Title Fee: The fee charged by the state to process a new title to be issued in the name of the customer and record your lien on the vehicle.

Registration Fee: In many states it is the fee for registering license plates for a vehicle in a customer’s name.

License Fee: The fee charged by the state to provide new license plates in a customer’s name for the vehicle.

Down Payment: The amount of cash and trade (less any payoff) paid by the customer toward the new vehicle. It does not affect gross profit.

Amount Financed: The original amount loaned to a customer. It consists of the sales price plus all taxable and non taxable add-ons less cash down payment and trade allowance.

Simple Interest Charges: The amount charged on the outstanding principal balance computed on the interval of the payments. Therefore, 10% simple interest charges on a $1,000 loan for one year paid in weekly installments do not equal $100.

Term of the Loan: The number of payments and time increments of the payments of a loan, e.g. 44 weekly payments, 22 bi-weekly payments.

Cash-In-Deal: The amount of money the dealership actually still has invested in a vehicle at delivery.

Amount Riding: The cash-in-deal less any money received from the customer.

Turn Positive: A term used to look at the investment strategy of the dealership as a whole. The dealership turns positive when the down payments plus the customer loan payments are greater than the cost of replacing inventory, paying all sales taxes, state fees and paying all business expenses.

Out of Debt: When all of the original investment capital from all sources has been paid back.

Fair Market Value: The price at which a vehicle would sell at a public auction. Get an accurate legal definition of this term for your state before you resell a repossessed vehicle.

Unpaid Balance: The amount financed minus payments made to date plus unpaid late charges, accrued interest and prepayment fees.

Rate of Return: A percentage that shows the relationship between the gross profit and inventory cost of a vehicle.

Gross Profit: The amount of money the dealership expects to make from the sale of a vehicle. It is not influenced by the amount of down payment.

Maximum Contract Length: The longest amount of time the dealership is willing to have a customer pay all the money owed for the purchase of a vehicle.


Inventory Cost             =   the purchase price of the vehicle + all reconditioning expenses + other expenditures related to the vehicle

Sales Tax (amount)       =   (The sales price – the gross trade allowance) x the sales tax rate (varies from state to state)

Net Trade Allowance     =    the gross trade allowance – any payoff on the traded-in vehicle

Total Down Payment     =    the total cash down + the net trade allowance

Gross Profit                   =    the sales price of vehicle – inventory purchase price –  reconditioning expenses

Rate of Return               =   the gross profit / the inventory cost

Amount Financed          =   the sales price of the vehicle – the net trade allowance + the sales tax + the title fee + the registration fee – the cash down payment

Total of Payments         =   (term x payment amount) + any final payment


the amount financed + the finance charge

Number of Payments     =   the amount financed / amount of payment

Final Payment               =  total of payments- (number of payments x amount of regular payment)

Finance Charge             =  total of payments – amount financed

Amount Riding               =  inventory purchase price + all reconditioning expenses – down payment – any payments received

Payment # when

Amount Riding is 0         =   Cash in Deal / amount of payment

Successful BHPH dealers utilize these formulas to monitor their operations and standardize their underwriting policies and procedures. Understanding these formulas is critical in controlling expenses and cash flow and, therefore, maintaining the financial health of your dealership.