Glossary
An explanation of terms frequently used and seen when obtaining car finance.
Frequently used terms:
Car Finance
Perhaps the main term used when talking about obtaining finance to fund a vehicle purchase. Generally the word car finance is used to describe straight forward hire purchase where you the customer take out a loan secured only of the vehicle and not your property or other possessions.
Car Credit
Another popular word to describe financing a vehicle through a dealership. Car Credit is used with the same meaning as Car finance and Car loan and as such is generally a hire purchase type agreement.
Car Loan
A term used to describe a variety of ways to fund a vehicle purchase. Obtaining a loan through a high street bank can be tricky if you have even a few small missed payments on your credit file. These could be down to a forgotten credit card statement or a missed payment whilst abroad. With something like that the chances are your bank would turn you down. A car loan can also be used to describe the type of finance we offer (hire purchase). We take in consideration all types of credit files from no credit history, a few missed payments to ex bankruptcy. Our rates vary and are based on your individual circumstances. We work with a large panel of lenders to ensure we can offer you the best deal possible based on your credit file and current financial situation. To Apply Click HERE
Glossary - A, B, C
A
Agreement
A short term used to describe a hire purchase (car finance) agreement.
Agreement Term
The length of time a hire purchase agreement will run for.
Annual Percentage Rate (APR) is an expression of the effective interest rate that will be paid on a car finance agreement, taking into account one-time fees and charges. In other words the APR is the total cost of credit to the customer expressed as an annual percentage of the amount of credit granted. APR is intended to make it easier to compare lenders and loan options though only on products with identical terms. Therefore comparing the APR's of loans of different values or agreement terms can be misleading.
B
Balloon payment
Often found on a PCP (Personal contract purchase) agreement. A large amount of the loan will be differed until the end of the agreement resulting in small monthly payments throughout the term with a final large payment needed to clear the outstand balance.
C
Cooling off period
Most personal loan agreements that are signed off trade premises included a short cancellation period. Car finance agreements (hire purchase) generally do not as by the nature of the agreement they must be signed on the supplying dealer’s premises. Think carefully before signing any finance agreements and ensure that you will be able to maintain the required payment.
Credit file
Looking at your credit file is one of the processes car finance companies will go through when making lending decisions. Different lenders look at your credit files in different ways, some finding certain things more important than others.
Glossary - D, E, F
D
Depreciation
Over time your vehicle loses value. This is due to a number of reasons from make & model to mileage & age. Depreciation generally won't be a problem unless you plan on changing your vehicle frequently whilst on a car finance agreement.
E
Equity
Equity in a vehicle is calculated by subtracting the amount of finance outstanding on the vehicle from the current market value. Equity is normally calculated when part exchanging your vehicle.
F
Glossary - G, H, I
G
GAP Insurance
GAP (Guaranteed Asset Protection). A type of insurance policy that protects you in the event of a total loss claim. GAP Insurance covers the difference between what the insurance company pays out and what you have outstanding on your car finance agreement. For a more detail description of GAP Insurance please check our GAP Insurance page.
H
Hire Purchase
When referring to a car finance agreement this is normally what is implied. With a hire purchase agreement you borrow a agreed sum over an agreed term. Repayments are generally made monthly and include both capital and interest. The loan is also normally secure on the funded vehicle. Once all repayments have been made the title of the vehicle will be passed on to the customer. Hire purchase agreements can also be settled early.
I
Glossary - J, K, L
J
K
L
Lease purchase
Lease purchase is a method of financing a vehicle, normally for vat registered companies. The monthly rental is determined by the cost of the vehicle, the period and the estimated future value of the vehicle which is based on the proposed annual mileage. A payment equivalent to the estimated future value is payable at the end of the contract, when the vehicle becomes the property of the lessee.
Glossary - M, N, O
M
Minimum guaranteed future value
Normally found on a PCP agreement - Instead of paying off the whole loan over the term, some of it is deferred. This amount - the minimum guaranteed future value (MGFV) - is agreed upfront and is detailed on the agreement. This value is also the balloon payment. It relates to a agreed annual mileage. You can choose to pay the balloon payment (equal to the GMFV) and keep the car, or hand it back and walk away.
N
Negative Equity
If the amount you owe on your car finance is greater than what the vehicle is actually worth - the difference is classed as negative equity. This can cause problems if you try to part exchange the vehicle or if the vehicle is written off, as the amount the insurance company pays out may not be enough to cover any outstanding car finance. This is another good reason to consider GAP Insurance.
O
Glossary - P, Q, R
P
Part exchange
The term used to describe the vehicle you agree to exchange for a part of the total value of the car your purchasing.
Payment Protection Insurance
A type of insurance policy generally taken out with a hire purchase agreement if there is a need to ensure that future payments will be made in the event of loos of employment, life or accident or sickness. Accept car credit is regulated by the financial services authority (the independent insurance watchdog) for the selling of car finance related insurance products. See our payment protection page for more details.
Q
R
Residual value
Normally found on a lease agreement. The term is used to describe the amount a vehicle is expected to be worth at the end of the lease.
Glossary - S, T, U
S
Secured Loan
With a secured loan the debt is generally secured on your house or property, meaning defaulting could put you in risk of losing your home. With hire purchase (Car finance) the loan is only secured on the vehicle, meaning that in the worst case scenario a default would only result in possible repossession of the vehicle or legal action not loss of your home.
T
Trade value
The trade value of a vehicle is what you can expect the vehicle to be worth to a dealership or to a car trader. Generally this is what dealer will offer you as a part exchange value. This is normally less than you would get if you sold the vehicle privately.
U
Unsecured Loan
Offered by many companies these loans are not secured. The problem that can arise is, as the loan is unsecured many banks and loan companies are very strict with whom they lend too - therefore people that have had unavoidable credit problems or even a few missed payment may be declined. With car finance the loan is secure only on the vehicle, making lenders happy as they have security on the loan and therefore are more likely to grant finance to people with previous credit problems.
