Buying a vehicle on finance needn’t be confusing. To help make this easier we’ve compiled a list of all the vehicle finance jargon and an explanation as to what they mean.
APR – Annual Percentage Rate
APR represents the price you pay to borrow money. It takes into account the interest rate and additional charges of a credit offer.
Arrears
Any money owed that is overdue.
Cash Price
Simply the cost of the car.
Credit History
The historical record of all your credit borrowing.
Deposit
A lump sum paid upfront to secure the sale of a product or service. When you take out vehicle finance you may be required to pay a deposit depending on the type of agreement.
Early Settlement
This is when you decide to end the finance agreement early and pay off the rest of what you owe.
Negative Equity
When the market value of your vehicle is less than the principle of the loan e.g. if you owe £10,000 on a car that has a current market value of £8,000 you have £2,000 in negative equity.
Finance Agreement
This agreement confirms the terms of the finance deal – monthly payments, cancellation terms etc.
Flate Rate
Interest rates can vary in some vehicle finance agreements. With flat rate, the interest rate should stay the same for the entirety of the agreement.
Hire Purchase
A hire purchase agreement is a hiring agreement between the customer and finance company secured against the vehicle. the customer has the option to own the vehicle at the end of the agreement subject to payment of the ‘option to purchase’ fee.
Joint Application
it is possible to apply and sign a finance agreement with two or more people. Together they are responsible for repaying the finance agreement.
Part Exchange
Trading in your old vehicle and using it as a contribution towards a new one.
Personal Loan
A personal loan is a loan at a fixed cost for a fixed period of time used to purchase any item a customer wants.
Residual Value
How much your vehicle is worth at the end of the agreement.
Soft Search
A check on your credit file that is not visible to other lenders.
Term
This is used to describe the length of time you’ll be paying off the finance agreement.
Annual Mileage
The amount of mileage a car on finance is allowed to drive each year. If you exceed this amount there is an added charge.
Balloon Payment/ Optional Final Payment
A balloon payment is a predicted minimum future value of the vehicle and is offset until the end of the agreement. By paying this payment you take ownership of the vehicle.
Credit
The ability of a customer to obtain goods or service before payment, based on the trust that payment will be made in the future.
Credit Rating/ Credit Score
This is based on your past credit history and existing debt. Lenders use this information to decide what rates to offer you.
Documentation Fee
Sometimes the lender will charge a fee to process the paperwork for your vehicle finance agreement. This is known as a documentation fee.
Positive Equity
When the market value of your vehicle exceeds the principle of the loan e.g. if you owe £10,000 on a car that has a current market value of £12,000 you have £2,000 in equity
FCA – Financial Conduct Authority
The independent body that regulated financial services in the UK.
Fixed-Rate Interest
Set interest that remains unchanged throughout the term of the finance agreement.
Guarantor Finance
Guarantor finance is a type of loan where a third-party individual such as a family member or close friend agrees to take over your repayments if you fail to do so.
Interest
Money paid regularly at a particular rate of the use of money lent or for delaying the repayment of a debt.
Lease-Purchase
Lease purchase is a form of conditional sale agreement, which means that regular payments are similar to a lease/rental agreement but you will own the vehicle at the end of the deal. You may be asked to pay a number of monthly payments at the start of your agreement and a sum is usually deferred to the end of the deal.
Personal Contract Purchase (PCP)
PCP is in essence a purchase agreement. However, a predicted minimum future value (balloon payment) is offset to the end of the agreement.
Refinancing
Refinancing involves replacing an existing loan with a new loan that pays off the debt of the first one.
Hard Search
A check on your credit file that is visible to other lenders.
Total Repayable
The total amount including the amount of credit, total charge for credit (interest) and any admin fees.
APR – Annual Percentage Rate
APR represents the price you pay to borrow money. It takes into account the interest rate and additional charges of a credit offer.
Annual Mileage
The amount of mileage a car on finance is allowed to drive each year. If you exceed this amount there is an added charge.
Arrears
Any money owed that is overdue.
Balloon Payment/ Optional Final Payment
A balloon payment is a predicted minimum future value of the vehicle and is offset until the end of the agreement. By paying this payment you take ownership of the vehicle.
Cash Price
Simply the cost of the car.
Credit
The ability of a customer to obtain goods or service before payment, based on the trust that payment will be made in the future.
Credit History
The historical record of all your credit borrowing.
Credit Rating/ Credit Score
This is based on your past credit history and existing debt. Lenders use this information to decide what rates to offer you.
Deposit
A lump sum paid upfront to secure the sale of a product or service. When you take out vehicle finance you may be required to pay a deposit depending on the type of agreement.
Documentation Fee
Sometimes the lender will charge a fee to process the paperwork for your vehicle finance agreement. This is known as a documentation fee.
Early Settlement
This is when you decide to end the finance agreement early and pay off the rest of what you owe.
Positive Equity
When the market value of your vehicle exceeds the principle of the loan e.g. if you owe £10,000 on a car that has a current market value of £12,000 you have £2,000 in equity
Negative Equity
When the market value of your vehicle is less than the principle of the loan e.g. if you owe £10,000 on a car that has a current market value of £8,000 you have £2,000 in negative equity.
FCA – Financial Conduct Authority
The independent body that regulated financial services in the UK.
Finance Agreement
This agreement confirms the terms of the finance deal – monthly payments, cancellation terms etc.
Fixed-Rate Interest
Set interest that remains unchanged throughout the term of the finance agreement.
Flate Rate
Interest rates can vary in some vehicle finance agreements. With flat rate, the interest rate should stay the same for the entirety of the agreement.
Guarantor Finance
Guarantor finance is a type of loan where a third-party individual such as a family member or close friend agrees to take over your repayments if you fail to do so.
Hire Purchase
A hire purchase agreement is a hiring agreement between the customer and finance company secured against the vehicle. the customer has the option to own the vehicle at the end of the agreement subject to payment of the ‘option to purchase’ fee.
Interest
Money paid regularly at a particular rate of the use of money lent or for delaying the repayment of a debt.
Joint Application
it is possible to apply and sign a finance agreement with two or more people. Together they are responsible for repaying the finance agreement.
Lease-Purchase
Lease purchase is a form of conditional sale agreement, which means that regular payments are similar to a lease/rental agreement but you will own the vehicle at the end of the deal. You may be asked to pay a number of monthly payments at the start of your agreement and a sum is usually deferred to the end of the deal.
Part Exchange
Trading in your old vehicle and using it as a contribution towards a new one.
Personal Contract Purchase (PCP)
PCP is in essence a purchase agreement. However, a predicted minimum future value (balloon payment) is offset to the end of the agreement.
Personal Loan
A personal loan is a loan at a fixed cost for a fixed period of time used to purchase any item a customer wants.
Refinancing
Refinancing involves replacing an existing loan with a new loan that pays off the debt of the first one.
Residual Value
How much your vehicle is worth at the end of the agreement.
Hard Search
A check on your credit file that is visible to other lenders.
Soft Search
A check on your credit file that is not visible to other lenders.
Term
This is used to describe the length of time you’ll be paying off the finance agreement.
Total Repayable
The total amount including the amount of credit, total charge for credit (interest) and any admin fees.