Car Finance Glossary
Car finance is full of terms and language that not everyone might be familiar with. This can leave you confused when trying to understand the complex financial terms that a dealer or some other finance company might be offering you. We at Cost4Cars believe transparency in the car buying process is very important and have compiled the below glossary of terms which can hopefully clarify the terms of any deals you have been offered and give you the language you need to negotiate for your best deal.
- Agreement: A legally binding contract between parties, in this context, typically between a car buyer and a finance provider.
- Balloon Payment: See Optional Final Payment.
- Bank Loans: Finance secured directly from a bank, often offering competitive interest rates for car purchases.
- Car Finance: The various methods available to pay for a car, typically involving borrowing money and making repayments over time.
- Comparison Sites: Websites that allow consumers to compare different car finance offers from various providers side-by-side.
- Cool-off Period (Statutory): A legally mandated period during which a consumer can cancel a finance agreement without penalty, typically 14 days from signing.
- Dealer Finance Deals: Finance agreements offered directly by car dealerships, often through their affiliated finance companies.
- Dealership Contributions: Amounts sometimes offered by a dealership to reduce the initial payment or overall cost of a finance deal.
- Deposit: An upfront payment made by the buyer at the start of a car finance agreement, reducing the amount to be financed. Also referred to as Initial Deposit or Initial Payment/Rental.
- Depreciation: The loss of value of a vehicle over time due to factors such as age, mileage, and wear and tear.
- Equity: The positive difference between a car's current market value and the outstanding amount owed on a finance agreement.
- Excess Mileage Charges: Fees incurred in PCP or Lease Hire agreements if the agreed-upon mileage limit is exceeded.
- Fixed Monthly Payments: Regular, unchanging payments made each month for the duration of a finance agreement.
- Guaranteed Future Value (GFV): A pre-agreed valuation of the car at the end of a PCP agreement, determined at the outset. This becomes the Optional Final Payment.
- Hire Purchase (HP): A type of car finance where you pay an initial deposit and fixed monthly payments, with ownership of the car passing to you once all payments are made.
- Initial Deposit: See Deposit.
- Initial Payment: See Deposit.
- Initial Rental: See Deposit (specifically used in Lease Hire/PCH).
- Interest Rate: The cost of borrowing money, expressed as a percentage of the loan amount, which is added to your repayments.
- Lease Hire: See Personal Contract Hire (PCH).
- Lease Length: The duration of a Personal Contract Hire (PCH) or Lease agreement, typically expressed in months or years.
- Lenders: Financial institutions or companies that provide loans or finance agreements.
- Loan Payments: The regular payments made to repay a loan, which include both principal and interest.
- Loan Term: The duration over which a loan is repaid, typically expressed in months or years.
- Maintenance Packages: Optional add-ons to lease agreements that cover the cost of routine servicing and maintenance of the vehicle.
- Mileage Limits: Restrictions on the number of miles a car can be driven over the term of a PCP or Lease Hire agreement, with charges for exceeding them.
- Monthly Payments: The regular, typically fixed, amounts paid each month as part of a car finance agreement.
- Optional Final Payment: The large, deferred lump sum payment due at the end of a Personal Contract Purchase (PCP) agreement if you wish to take ownership of the car. Also known as a Balloon Payment.
- Personal Contract Hire (PCH): A long-term rental agreement for a car where you make fixed monthly payments and return the car at the end of the term without owning it. Also known as Lease Hire.
- Personal Contract Purchase (PCP): A popular car finance option involving an initial deposit, fixed monthly payments, and a deferred Optional Final Payment. You have choices at the end of the term (own, return, or new deal).
- Private Sale: Selling your car directly to an individual buyer rather than trading it in with a dealership.
- Rental Agreement: A contract outlining the terms and conditions for leasing or hiring a vehicle for a specified period.
- Term: The duration of a finance agreement, usually expressed in years or months.