Car Finance Glossary | Used Car finance terms and guide

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Car Finance Glossary

  • 1. APR

    Annual Percentage Rate (APR) is the amount charged for the loan including all administrative fees. Every loan must have APR calculated in the same way to allow customers to compare different finance options.

  • 2. Interest

    Additional money paid back on to top of the amount of money borrowed – this is how a lender makes money.

  • 3. Acceptance Fee

    Covering the administration costs of creating the loan and sending out documentation, this the amount charged by lender.

  • 4. Balloon Payment

    If you finance your car with a Personal Contract Plan (PCP) then you can expect to see a balloon payment as part of your documentation. Also known as a Guaranteed Future Value.

  • 5. Credit Rating

    A credit rating looks at your previous borrowing record, employment history, whether you own your own home and employment history. Using this factors a credit rating is determined. If you have a better credit rating then you have a higher chance for being approved for finance.

  • 6. Poor Credit History

    When you over spend on credit cards, miss mortgage or loan payments then you may be seen as having a poor credit history. This may lead to you been rejected for a loan or being accepted at a higher rate of interest.

  • 7. Equity

    If your car is worth more than the amount owed on finance then this amount is known as equity.

  • 8. Negative Equity

    This occurs when more money is owed on car finance than the car is worth.

  • 9. Personal Contract Plan

    Also known as a PCP, this involves paying an initial deposit followed by monthly payments. A large part of the loan is deferred until the end – known as a balloon or Guaranteed Future Value. The borrower can make the final payment or simply make the final payment or use the equity as a deposit against another car.

  • 10. Hire Purchase

    Seen by many as the traditional way to finance a car, Hire Purchase requires the borrower to pay an initial deposit followed by a series to monthly payments over a set period of time. Once the final payment is made the borrower owns the car outright.

  • 11. Term

    The length of time that any loan is to be paid back over – typically this can last 12 to 60 months.

  • 12. Credit Facility Fee

    The fee due at the end of the personal loan agreement

  • 13. Option to Purchase Fee

    The fee due at the end of the Hire Purchase agreement to cover cost of transferring the legal title of the car to the owner from the finance company.