Finance Glossary

The length of time (often shown in months) during which you are required to repay the finance borrowed.

This is an annual charge for managing the agreement. The cost is taken into account when the Annual Percentage Rate (APR) is calculated.

This is a fixed mileage amount that can be specified in a vehicle financing or contract purchase agreement. This is decided when the agreement is taken out, and helps us to determine the residual value (the car’s predicted value at the end of the agreement) of the vehicle. In Personal Contract Purchase agreements, any excess mileage is chargeable, so it is important to be realistic in your estimate.

The APR shows the rate of interest you will pay for the amount you borrow. It includes any fees or additional costs such as Documentation Fees associated with the transaction.

Also known as ‘adverse credit history’, this refers to people do not have a top-quality credit rating and may have experienced repayment issues in the past. You can check your credit history with reference agencies such as CallCredit, Experian, and Equifax.

If you have an adverse credit history, it’s still worth talking to us about your specific circumstances. We don’t just take credit scores into account and we often provide finance for people who struggle to get finance elsewhere.

The amount in cleared funds that you have already repaid to us (this will exclude the Final Basic Rental).

The amount you need to borrow – usually the selling price of the car, less any deposit or part-exchange allowance.

This is the final, deferred lump sum paid at the end of some Personal Contract Purchase (PCP), Lease Purchase or Hire Purchase with Balloon agreements. Along with any Option to Purchase or other similar fee, the Balloon Payment completes the finance agreement and allows you to take ownership of the car. In a PCP agreement the Balloon Payment is optional. Other finance agreements allow you to sell or refinance the vehicle to make the balloon payment at the end of the agreement term.

The Capital Balance shows the amount outstanding for the finance agreement, plus any interest or other sums that have accrued over the course of the agreement.

This refers to funds that have been processed by a bank and are available for withdrawal

Credit ratings are used to estimate the risk of lending to a business or individual. We use credit rating agencies as part of our credit assessment process.

Depreciation refers to the loss of value of a vehicle over time. Some vehicles will lose their value more quickly than others.

This is a charge for setting up your finance agreement and issuing your documents. The fee is included in the total amount payable and taken into account when the Annual Percentage Rate (APR) is calculated.

When a customer pays off the remainder of their finance agreement before the agreed term is completed. Customers usually do this to save on the interest they would have paid for the rest of agreed term.

Final Basic Rental means the final amount repayable by you, as specified in the agreement or quote.

This is the last repayment to be made under a finance agreement. It may include an Option-to-Purchase Fee (depending on the agreement type) and a balloon payment.

Signing up to a fixed rate agreement means the amount of interest you pay stays the same throughout the term of your finance agreement.

This is the base interest rate charged on the finance. The flat interest rate does not include other charges like any administration fees. The Annual Percentage Rate (APR) more accurately describes the true cost of the finance.

This refers to your income before tax and National Insurance have been deducted. You may be asked for this information when completing the finance application.

Hire purchase (HP) is a popular way to finance vehicles. When taking out an HP agreement, you pay an initial deposit, then fixed monthly repayments over a set number of months. Although you become the ‘registered keeper’ of the car, you are only hiring it. You don’t own the vehicle until you have made the final repayment (including the Option-to-Purchase fee).

This is where a percentage of the total cost of the car is deferred until the end of the contract. We will assess the forecast value of the car at the beginning of the agreement, based on several factors including the annual mileage estimated by you. Guaranteed Minimum Future Values only apply to Personal Contract Purchase agreements.

UK motorists are legally required to insure their vehicle. It’s also a requirement of all our finance agreements that you have arranged for comprehensive insurance cover to be in place for your vehicle at all times.

Lease Purchase is a form of Hire Purchase agreement, where a sum is deferred until the end of the contract. This is determined by the projected age of the car and the forecast mileage. Unlike with Personal Contract Purchase (PCP) agreements, the deferred amount (also referred to as a balloon payment) is not optional and must always be paid.

The amount you pay every month under the terms of the finance agreement. They are referred to as rentals – rather than repayments – because you do not own the vehicle until all repayments, fees and any balloon payment have been made.

Your earnings, after income tax and national insurance have been deducted.

This is a payment made at the end of an agreement which transfers ownership of the car from us to you.

Part-exchange involves trading in your existing car and using the value as part payment for your new car, perhaps to help fund a deposit under a finance agreement.

The monthly payment period, starting from the date of an agreement.

Personal Contract Purchase (PCP) is a form of hire purchase agreement that includes a voluntary “balloon” payment at the end of the fixed term. This final amount represents the future residual value of the car. With a PCP agreement, payment of the future value of the car is optional, but it must be paid if you wish to own the car outright.

The value of the vehicle at the end of the finance agreement. Residual value is determined by the age of the vehicle, its mileage and its resale appeal.

Most vehicle finance agreements are secured loans. This means that if you cannot keep up repayments, the car will be repossessed. Secured loans are less risky for us, which means we can offer more flexible terms and conditions to our customers.

If you want to keep renting your vehicle once an agreement comes to an end, you may be able to arrange a second agreement, with a secondary finance period, for the same car.

The length of time over which you agree to repay the amount of finance you have borrowed.

Signing up to a Variable Rate agreement means the amount of interest you pay can go down or up during the term of your finance agreement, depending on the Finance House Base Rate applied.

Vehicle Identification Number. Sometimes called the chassis number, every vehicle has a unique VIN which is used to confirm a car’s identity and prevent fraud. Unlike a number plate, a vehicle’s VIN cannot be changed.