LATEST READ What is PCP car finance? Read Guide
LATEST READ What is PCP car finance? Read Guide
0% car finance means that 0% interest will be charged on the loan. This means that the borrower does not have to pay any interest on the loan amount they have borrowed, resulting in lower overall costs and potentially more affordable monthly payments. Read this guide to 0% interest car finance for more information.
An acceptance fee is (usually) a one-time fee charged by lenders to cover the cost of processing a car loan application and accepting the loan offer. The acceptance fee is typically included in the total cost of the loan and is paid upfront by the borrower, in addition to any other fees and charges associated with the loan.
An administration fee in car finance is a fee charged by lenders to cover the cost of administering the car loan. The administration fee covers the cost of processing the loan application, setting up the loan agreement, and any other administrative costs associated with the loan.
An agreement term in car finance refers to the length of time for which a car loan agreement is in effect. Read about what happens at the end of a car finance agreement here.
The amount of credit refers to the total amount of money that a lender agrees to loan to a borrower to finance the purchase of a vehicle.
An annual administration fee is a fee charged by lenders on an annual basis to cover the cost of administering a car loan.
Annual mileage is a fee charged by some lenders on an annual basis to account for the estimated mileage a borrower is expected to put on a financed vehicle. If the borrower exceeds the agreed-upon annual mileage limit, they may be subject to additional fees or penalties at the end of the lease term.
APR stands for Annual Percentage Rate. It covers the annual rate of interest charged on an agreement. Read more about Annual Percentage Rate here.
Approved In Principle refers to a preliminary approval given by a lender, subject to further verification and approval based on additional information provided by the borrower. The approval in principle is usually based on a preliminary assessment of the borrower’s creditworthiness, income, and other financial factors, and is used to provide the borrower with an estimate of the amount of credit they may be eligible to receive.
When a borrower is in arrears, it means that they have missed one or more payments and have not made any arrangements with the lender to catch up on the missed payments.
Bad credit history refers to a record of past credit behaviours that suggest a borrower is a high-risk candidate for a car loan or other types of credit. A bad credit history may be the result of missed or late payments, defaults, bankruptcies, or other factors that indicate the borrower has had difficulty managing debt in the past.
Borrowers with a bad credit history may find it more difficult to obtain car finance or may be offered loans with higher interest rates or less favourable terms compared to borrowers with a good credit history. However, some lenders specialise in providing car finance to borrowers with a bad credit history and may offer alternative options such as bad credit finance or guarantor loans. You can find out more information about getting accepted for car finance with bad credit here.
Balance refers to the amount of money that a borrower still owes on a car loan or car finance agreement. The balance is calculated by subtracting the total amount of payments made by the borrower from the total amount of the loan or finance agreement. As the borrower makes payments over time, the balance decreases until the loan is fully repaid.
A balloon payment refers to a large, lump-sum payment that is due at the end of a loan term, typically for a PCP car loan. It is called a “balloon” payment because it represents a large, inflated payment compared to the regular instalment payments made throughout the loan term. Find out more about how balloon payments work here.
Basic rentals paid refers to the regular payments made by the lessee (the person who leases the car) to the lessor (the owner or leasing company) during the term of a car lease. These payments typically cover the cost of using the car, including depreciation, finance charges, and other fees.
In a battery lease arrangement, you’ll pay a monthly fee for the use of your car’s battery. This fee is usually based on the expected usage of the battery, and may be influenced by factors such as driving habits, the climate in which the car is used, and the overall condition of the battery. This is typically done for electric vehicles, as the battery is a key component of the car’s propulsion system and is often one of the most expensive components to replace.
In car finance, a broker is a person or a company that acts as an intermediary between a borrower and a lender to help the borrower obtain financing for a car purchase. A car finance broker typically works with a network of lenders to offer borrowers a range of loan options and interest rates. The broker will help the borrower understand the terms and conditions of each loan option, and may provide advice on which loan is the best fit for the borrower’s needs and financial situation.
CAIS is a system used by lenders to share information about a borrower’s credit history and loan repayment behaviour with other lenders. The CAIS system allows lenders to make more informed decisions about whether to approve a loan application, and at what interest rate, based on the borrower’s creditworthiness and history of loan repayment.
Capital balance refers to the amount of money that is still owed on a car loan. It represents the principal amount of the loan that has not yet been repaid, and does not include any interest or fees that may be charged.
Car finance refers to the various methods of obtaining financing to purchase or lease a car. This can include traditional car loans from banks or credit unions, dealership financing, leasing arrangements, or other forms of financing. The terms and interest rates of car finance options can vary widely depending on the borrower’s credit history, the type of car being financed, and other factors. Read more on the types of car finance here.
A car lease agreement involves ‘hiring’ a car and handing it back once the agreement has ended. In some cases, you might be able to pay a lump sum if you wish to keep the car.
A car loan is another term for car finance. It is the financial agreement secured against the car you wish to buy. It allows you to drive said car without having to pay for it in full (in one go).
Cash price refers to the cost of the car. This will likely be lower than the cost of your financing agreement as it does not include interest/additional charges.
Cleared funds refers to funds that the bank has processed and are available for withdrawal.
A conditional sale in car finance refers to a type of agreement where the buyer pays for a vehicle in instalments over a fixed period of time The buyer’s ownership rights are conditional upon the completion of the payment plan, after which they will fully own the car.
The Consumer Credit Directive (CCD) is a set of regulations implemented by the European Union (EU) to harmonise and standardise consumer credit laws across all EU member states. These regulations govern the granting of credit to consumers, including car finance agreements, and aim to provide a high level of protection to consumers by ensuring transparency, fairness, and responsible lending practices. It covers all agreements of up to £60,260.
In car finance, a contract is a legally binding agreement between a buyer and a lender that outlines the terms and conditions of a car loan. The contract specifies the amount of the loan, the interest rate, the length of the loan term, the payment schedule, and any additional fees or charges. It also details the rights and responsibilities of both the buyer and the lender.
Contract hire is a type of car finance agreement where a customer leases a vehicle from a leasing company for a fixed period of time, usually two to four years, in exchange for a monthly payment. The customer does not own the vehicle but is given use of it during the term of the agreement. At the end of the contract, the customer returns the car to the leasing company, and they are not responsible for selling it or trading it in.
Cost of Credit refers to the total cost that a borrower pays to a lender for borrowing money or obtaining credit. This cost includes interest charges, fees, and any other charges associated with the credit agreement. It is expressed as an annual percentage rate (APR) and is a way for borrowers to compare the costs of different credit offers.
A County Court Judgement (CCJ) is a court order issued by a County Court in the United Kingdom that requires a borrower to repay a debt. CCJs are often issued when a borrower has failed to make payments on a debt, and they serve as a legal means for a creditor to recover the money owed to them. Read more on if you can get car finance with a CCJ here.
A Credit Agreement is a legal contract between a borrower and a lender that outlines the terms and conditions of a loan or other form of credit. This agreement includes the amount of credit being provided, the interest rate, the repayment schedule, and any other fees or charges associated with the credit. The Credit Agreement is a binding contract that outlines the obligations of both the borrower and the lender.
A credit broker is an intermediary who helps individuals or businesses to find and secure credit from lenders. Credit brokers do not lend money themselves but instead act as a facilitator between borrowers and lenders.
Credit history is a record of an individual or business’s borrowing and repayment behaviour. It includes information on loans, credit cards, mortgages, and other forms of credit. Credit history is maintained by credit reference agencies and is used by lenders and other organisations to assess creditworthiness and determine the risk of lending money.
A credit reference agency is a company that collects and maintains information on the credit history of individuals and businesses. The information is obtained from various sources, including lenders, public records, and electoral registers. Credit reference agencies use this information to create credit reports, which are used by lenders and other organisations to make decisions about whether to grant credit or other financial products to individuals or businesses.
A credit search is an inquiry made by a lender or other organisation to a credit reference agency to obtain information on an individual or business’s credit history. Credit searches are used to assess creditworthiness and determine the risk of lending money.
In the context of car finance, the creditor is the lender who provides the loan or credit agreement to the borrower.
A Debt Management Plan (DMP) is an agreement between a debtor and their creditors to repay their debts in full or in part. The debtor makes regular payments to a debt management company, which then distributes the funds to the creditors. DMPs are typically used by individuals who are struggling with unsecured debts, such as credit cards, personal loans, and store cards.
A debtor (borrower) is a person or organisation that owes money to another person or organisation. In the context of car finance, the debtor is the person who has borrowed money to purchase a car.
Default interest is an additional interest rate charged by a lender when a borrower fails to make payments on a loan or other credit agreement. Default interest rates are typically higher than the standard interest rate and are intended to compensate the lender for the increased risk of non-payment.
A Default Notice is a formal notice sent by a lender to a borrower who has failed to make payments on a loan or other credit agreement. The notice informs the borrower of the amount owed, the steps the lender will take to recover the debt, and the consequences of further non-payment.
A deposit is an upfront payment made by a borrower to a lender or seller as part of a car finance agreement. The deposit is usually a percentage of the total cost of the vehicle and is intended to reduce the amount of money that the borrower needs to borrow.
A Deposit Contribution is a sum of money contributed by the dealer or manufacturer towards the deposit for a car finance agreement. This can help reduce the amount of money that the borrower needs to borrow.
Depreciation is the decrease in the value of a car over time due to factors such as age, wear and tear, and market conditions. Depreciation is a key consideration in car finance as it can affect the value of the vehicle at the end of the finance agreement.
Discretionary Expenditure is expenses that are not essential for day-to-day living, such as entertainment, holidays, or eating out. In the context of car finance, discretionary expenditure is taken into account by lenders when assessing a borrower’s ability to make repayments on a loan or other credit agreement.
A Documentation Fee is a fee charged by a lender or dealer to cover the cost of preparing and processing the paperwork for a car finance agreement. This fee is typically added to the total cost of the agreement and can vary depending on the lender or dealer.
Early Settlement is the process of paying off a car finance agreement before the end of the agreed term. This can be done by making a lump sum payment or by refinancing the remaining balance. Early settlement may be subject to fees or charges, depending on the terms of the agreement. Find out how to pay off car finance early here.
End of Contract Charges are fees that may be charged by a lender or leasing company at the end of a car finance agreement. These charges may include fees for excess wear and tear, excess mileage, or other charges specified in the contract.
Equity is the difference between the value of a car and the amount owed on a car finance agreement. If the value of the car is greater than the amount owed, the borrower has positive equity. If the amount owed is greater than the value of the car, the borrower has negative equity. Negative equity can occur when the car has depreciated in value more quickly than expected, or if the borrower has taken out a loan for more than the car is worth.
Excess Mileage is the number of miles a car has been driven above the mileage limit specified in a car finance agreement. Excess mileage charges may apply if the car is returned at the end of the agreement with more miles than allowed. The excess mileage charge can vary depending on the lender or leasing company.
FCA stands for the Financial Conduct Authority. The FCA is a regulatory body in the United Kingdom responsible for regulating financial markets and ensuring that financial firms operate in the best interests of consumers.
🚗 Read more: What Type Of FCA Authorisation Do Car Finance Providers Require?
A fee is a charge for a service or product. In car finance, fees may be charged for things like arranging the finance agreement or for early repayment of the loan.
A Finance Agreement is a legal contract between a borrower and a lender that sets out the terms and conditions of a loan for the purchase of a car. It specifies the amount of the loan, the interest rate, the repayment schedule, and any other terms and conditions. There are always things to look out for on your car finance agreement, check those out before signing the dotted line.
Fixed Rate is an interest rate that remains the same over the term of a car finance agreement. This means that the borrower’s repayments will remain the same throughout the term of the agreement, providing certainty and stability for budgeting.
The Final Payment is the last payment due under a car finance agreement. It may be larger than the regular monthly payments and may be referred to as a balloon payment or final basic rental.
A Flat Rate is an interest rate that is charged on the entire amount of a car finance agreement, regardless of the outstanding balance. This means that the borrower pays the same amount of interest each month, regardless of how much of the loan has been repaid. The Flat Rate does not take into account the reducing balance of the loan over time, which can make it more expensive than other types of interest rates.
A type of car insurance that covers the difference between what you owe on a car loan and the actual cash value of the car in the event that the car is stolen or totaled in an accident.
The total amount of income you earn before any deductions or taxes are taken out. This includes wages, salaries, bonuses, and any other income you receive from sources such as investments or rental properties.
A feature of some car finance agreements that guarantees the minimum value of the car at the end of the agreement. This can be helpful if you want to keep your options open at the end of the agreement, as you can choose to either pay the GMFV and keep the car, trade it in for a new car, or return it to the lender.
A person who agrees to take on the responsibility of paying back a loan or debt if the borrower is unable to do so. Guarantors are often used in situations where the borrower has a poor credit history or is otherwise considered to be a high risk by lenders. The guarantor’s credit history and financial situation will be taken into consideration when determining whether to approve the loan or credit application. Read more about who can be a guarantor on your car loan here.
When you apply for credit, such as a car loan, the lender may perform a hard credit check to review your credit history and assess your creditworthiness. This type of credit inquiry can lower your credit score by a few points and may stay on your credit report for up to two years. Take a look through what checks are done when applying for car finance here.
A type of car financing arrangement where you pay for the car in instalments over time, typically with interest. The car is owned by the finance company until you have paid off the full amount owed. Once you have made all the payments, you will own the car outright. Hire purchase financing is often used for new or used cars and may require a deposit at the beginning of the agreement.
An Individual Voluntary Agreement is a formal agreement between an individual and their creditors that sets out a repayment plan for debts that the individual is unable to repay in full.
🚗 Read more: What Is An IVA?
A payment that is made in regular intervals, typically monthly, as part of a larger payment plan.
A financial product that provides protection against certain risks or losses. In the context of car finance, insurance may refer to policies such as comprehensive insurance, which covers damage to the car in the event of an accident, or gap insurance, which covers the difference between what you owe on a car loan and the actual cash value of the car in the event of theft or total loss.
An offer or promotion where no interest is charged on a loan or credit agreement for a certain period of time. This can be a helpful option for individuals who want to spread out the cost of a purchase without paying interest charges.
The rate at which interest is charged on a loan or credit agreement. The interest rate may be fixed or variable, and it can affect the overall cost of the loan. A higher interest rate will result in higher interest charges over time. Read about how interest rates work with car finance here.
The price that a dealer pays to a manufacturer. This is typically lower than the price that the dealer will charge a customer for the same product, as the dealer adds on their own markup and profit margin. The invoice price can be a useful reference point when negotiating the price of a car with a dealer.
A credit application that is submitted by two or more people. When applying for car finance, for example, two people may apply together as co-applicants. This can be helpful if one person has a poor credit history, as the other person’s creditworthiness can be taken into consideration.
A unit of measurement for power, commonly used to describe the power output of car engines. The higher the kilowatt rating, the more powerful the engine.
A fee that is charged by a lender or creditor when a payment is not made on time.
With a lease purchase, you typically make monthly payments over a set period of time, but at the end of the agreement you have the option to either buy the car outright by making a balloon payment or return the car to the lender.
The ongoing upkeep and repair of a vehicle to ensure it is operating safely and efficiently. This can include routine services such as oil and tyre changes, as well as more significant repairs.
🚗 Learn more: How To Check A Car’s MOT History.
The maximum amount of money that a lender is willing to lend for the purchase of a car.
The highest monthly payment that a borrower is required to make to the lender as part of their car finance agreement.
The maximum number of miles that a borrower is allowed to drive their vehicle during the term of their car finance agreement. Going over the mileage allowance can result in additional fees or penalties.
The fixed monthly payments that a borrower makes to the lender as part of their car finance agreement. This amount may include interest charges, as well as a portion of the principal amount borrowed. They are called ‘rentals’ as you do not own the car until all payments have been made.
Short for Ministry of Transport test, this is a mandatory annual safety inspection required for all vehicles in the UK that are over three years old. The MOT ensures that the vehicle meets minimum safety and environmental standards.
The amount of money that a borrower earns after taxes and other deductions have been taken out of their paycheck. This is the amount of money that is available to be spent on expenses, including car finance payments.
Essential expenses that a borrower must pay each month, such as rent or mortgage payments, utility bills, and groceries. These expenses are considered necessary and cannot be easily reduced or eliminated.
A situation in which a borrower owes more on a car finance loan than the car is worth. This can occur when the value of the car depreciates faster than the borrower is paying off the loan.
The total price of a car, including all taxes, fees, and other charges. This is the price that a borrower will pay to drive the car off the dealership lot.
A fee charged by some lenders at the end of a car finance agreement, allowing the borrower to legally purchase the car outright. This fee is usually a fixed amount and may be included in the monthly payment or paid separately at the end of the agreement.
Also known as a Balloon Payment, Optional Final Payment is a lump sum payment that a borrower can choose to make at the end of a car finance agreement to purchase the car outright.
Per Annum is another way to say ‘per year’. You’ll often see Per Annum mentioned when referring to interest rates.
A process in which a borrower trades in their current vehicle to contribute towards the purchase of a new vehicle. The value of the current vehicle is applied towards the purchase price of the new vehicle, reducing the amount of money that the borrower needs to borrow for the new car.
Information provided by a lender to a borrower before they enter into a car finance agreement. This information includes details about the loan, such as the interest rate, monthly payments, and total amount borrowed, as well as any fees or charges that will be applied.
Short for Personal Contract Purchase, this is a type of car finance agreement that allows the borrower to pay for a car in instalments over a set period of time. At the end of the agreement, the borrower can choose to make a final (balloon) payment to purchase the car outright, return the car to the lender, or trade the car in for a new vehicle. Read a full guide to PCP car finance here.
A type of loan that a borrower can use for any purpose, including the purchase of a car. Personal loans are usually unsecured, meaning that the borrower does not need to provide collateral to secure the loan. Check out the difference between car finance and personal loans here.
A type of credit search that allows a borrower to obtain multiple loan quotes without impacting their credit score. Quotation searches (soft searches) are a useful tool for borrowers who want to compare different loan options before making a decision.
The process of replacing an existing car finance loan with a new loan, often with different terms or interest rates. Refinancing can help borrowers lower their monthly payments or reduce the total cost of their loan.
The settlement or early termination of your finance agreement.
The process of a lender seizing a car from a borrower who has failed to make payments on their car finance loan. Repossession is a last resort for lenders and is usually only carried out after other efforts to collect payments have been unsuccessful.
The annual percentage rate used by lenders to represent the typical interest rate charged on a car finance loan. The representative APR takes into account both the interest rate and any additional fees or charges associated with the loan.
A sample loan agreement that shows the total amount borrowed, the interest rate, and the repayment terms for a car finance loan. Representative examples are used by lenders to help borrowers understand the costs associated with their loan.
The estimated value of a car at the end of a car finance agreement. The residual value is used to calculate the monthly payments required to pay off the loan and is based on the predicted depreciation of the car over the term of the loan.
A period of time after a car finance agreement has ended, during which the borrower can take out a new finance agreement for the same car.
A type of loan that is secured by collateral, such as a car or a house. If the borrower fails to repay the loan, the lender can seize the collateral to recover their losses.
The process of paying off a car finance loan in full before the end of the loan term.
A type of credit check that does not leave a visible mark on a borrower’s credit report. Soft searches are typically used to provide borrowers with loan quotes or pre-approvals, and do not impact the borrower’s credit score.
The length of time over which a car finance agreement is in effect. The term length determines the number of payments required to pay off the loan, and can impact the interest rate and monthly payments.
Sources of information or services related to car finance that are not directly affiliated with the lender or borrower. Third party sources may include credit reference agencies, insurance providers, or car dealerships.
The legal document that proves ownership of a car. The title may also be referred to as the “logbook” or “V5C document” in some countries.
The total amount of money that a borrower will need to repay over the course of a car finance agreement, including the principal amount borrowed, any interest charges, and any fees or charges associated with the loan.
The estimated value of a car if it were to be traded in at a dealership. Trade value is typically lower than the retail value of a car, as dealerships need to account for the cost of refurbishing or reselling the vehicle.
The process of transferring ownership of a car from one party to another. The transfer of legal title typically involves signing over the title document and registering the transfer with the relevant authorities.
Professionals who assess the risk of lending money to borrowers, and determine the terms and conditions of a loan. Underwriters typically review a borrower’s credit history, income, and other financial information to determine their ability to repay the loan.
A type of loan that is not secured by collateral, such as a car or a house. Unsecured loans may have higher interest rates than secured loans, as lenders are taking on a greater level of risk by lending money without any guarantee of repayment.
The costs associated with maintaining and using a car, such as fuel costs, oil changes, and repairs. Utilities costs may also include the cost of insurance, taxes, and other fees associated with owning a car. These costs can have a significant impact on the overall cost of car ownership and should be factored into any car finance decisions.
Interest rates that can fluctuate over time, based on changes in the market or other factors. Variable rates may be used in some car finance agreements, and can impact the overall cost of borrowing.
A tax that must be paid on most types of vehicles in some countries. VED is typically based on factors such as the vehicle’s emissions and fuel type, and can be paid annually or in one lump sum.
Vehicle Identification Number. A unique code that is assigned to every vehicle. The VIN can be used to track the history of a vehicle, including its ownership, accident history, and maintenance records.
The process of returning a car to the lender or finance company, typically because the borrower is unable to make the required payments. Voluntary surrender may have a negative impact on the borrower’s credit score and may result in additional fees or charges.
A legal right available to borrowers in some countries that allows them to terminate a car finance agreement early, typically after making half of the total payments required under the agreement. Voluntary termination can be a cost-effective way to end a car finance agreement, but may have an impact on the borrower’s credit score.
A guarantee that is provided by the manufacturer or seller of a vehicle, promising to repair or replace certain parts or components within a specified period of time or mileage. Warranties may cover different parts of the vehicle and may be limited by certain conditions or exclusions.
The gradual deterioration of a vehicle over time, caused by normal use and exposure to the elements. Wear and tear can result in a decrease in the value of the vehicle and may impact the overall cost of ownership.
A term used to describe a vehicle that has been damaged or destroyed to the extent that it is deemed uneconomical to repair. A vehicle may be written off by an insurance company if the cost of repairs exceeds the value of the vehicle, or if the vehicle has been involved in a serious accident or other incident.
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