Car Finance Jargon

Car Finance Jargon

Here at, we work hard to simplify every aspect of affordable vehicle funding for our customers. However, we also understand that some of the jargon encountered on the way can be confusing. So to help, we’ve put together a brief glossary outlining some of the most important terminology you may come across when applying for vehicle finance:


The APR of a loan stands for its ‘Annual Percentage Rate’- the total amount of interest charged on an annual basis. A loan’s APR does not include any other borrowing costs that may be payable.


A vehicle finance broker is effectively an advanced comparison service, scouring the market to find the best possible deals and providing helpful support and guidance throughout the process.

Balloon Payment

This refers to the guaranteed future value of the vehicle being purchased.

Credit Search

A credit search is performed by the broker and/or the
lender, in order to check the credit score of the applicant.
Their chosen Credit Referencing Agency is contacted digitally, returning a ‘score’ that will determine whether the application is accepted and the overall borrowing costs accordingly.

Credit Score

Your credit score is a permanent metric used to indicate how well you have managed your financial responsibilities to date. The higher your credit score, the better.

Credit Agreement

This is the official term for the legal contract established between the lender and the borrower, outlining the terms of the agreement and the responsibilities of both parties.

County Court Judgement

More typically referred to as CCJs, county court judgments are official orders registered against debtors when debts remain unsettled. A CCJ details the outstanding balance, how the debt will be cleared and the deadline for clearing it.

Cost of Credit

This is also referred to as the overall borrowing costs – the amount of money payable on top of the actual loan itself.
Cost of credit may include arrangement fees, administration fees, interest, early repayment fees and so on.

Consumer Credit Act

The Consumer Credit Act 1974 is an act of law designed to protect consumers who approach lenders to access lines of credit.

Document Fees

An additional administration fee known as a ‘document fee’ may be applied to cover the costs of the paperwork involved during the application process and when the loan is finalised.


When he vehicle loses value over time, this is referred to as depreciation.

Default Interest

In the event that the borrower defaults on a loan, they may be required to pay a higher rate of interest known as default interest. This is payable to augment the additional risk of the loan from the perspective of the lender.


This is the initial payment (cash that you put down at the start of the finance agreement). This will be deducted from the amount of credit you borrow to pay for the car.


Equity is simply another word for property – your vehicle becoming your equity/property upon repaying the loan in full.

Fixed Rate

A fixed rate loan attaches a set rate of interest that is guaranteed not to change at any time throughout the life of the loan. By contrast, variable interest rates can increase or decrease at any time for a variety of reasons.

Guaranteed Future Value

A vehicle’s guaranteed future value is calculated in accordance with its age and condition, the make and model of the vehicle, your estimated annual mileage and approximate retail value by the end of your loan agreement.


If you are unable to qualify for credit for any reason, you may be able to ask a third party to ‘guarantee’ the loan on your behalf. The guarantor is subsequently held liable in the event that the primary applicant defaults on their monthly repayments.

HPI Check

An essential check that should be considered mandatory when purchasing a used car, which indicates whether the vehicle has been previously stolen or written off.

Hire Purchase Agreement

A hire purchase agreement is usually entered into by paying a deposit, after which a series of monthly repayments follow before ownership of the car is officially transferred to the borrower.

Interest Rate

Rates may be calculated on a weekly, monthly or annual basis, indicated as a percentage (%) and added to the total value of the loan to be repaid.


Service providers offering lines of credit of any kind that are designed to be repaid in accordance with a credit agreement are classified as lenders.

Negative Equity

If the outstanding balance on your finance agreement exceeds the total value of your car, this is described as negative equity.

Option to Purchase Fee

In some instances – usually when a vehicle is leased – the borrower may have the option to purchase the car at the end of the agreed term, in order to become its rightful owner. If they choose to do so, they’ll usually pay an ‘Option to Purchase Fee’ as indicated when the contract was first entered into.

Representative APR

The representative APR quoted by a broker or borrower is an approximate indication of the annual rate of interest applied to the loans they provide. Nevertheless, the actual interest rate charged may vary significantly from one loan to the next, in accordance with the borrower’s financial circumstances and the specifics of the loan.

Residual Value

Residual value refers to the vehicle’s resale value when the finance agreement comes to an end.

Soft Search

Traditional credit checks can have a negative impact on the respective applicant’s credit score. By contrast, a ‘soft search’ ensures that irrespective of the outcome, no visible trace is left on the borrower’s credit report.

Secured Loan

When a lender can provide financial support in return for the borrower offering collateral to cover the cost of the loan, this is known as a secured loan. Vehicle finance loans are typically secured on the value of the vehicle, meaning the lender may claim possession of the vehicle if the borrower falls into arrears.


Standard European Consumer Credit Information

Total Repayable

A complete total of the amount the borrower is required to repay, including the value of the loan itself and all additional fees and borrowing costs incurred.


The term ‘underwriting’ refers to the process of assessing
the loan application, examining the financial status of the applicant and determining eligibility accordingly. The underwriting process is essentially everything that takes place behind the scenes, in order to accept or refuse credit to any given applicant.

For more information on affordable car finance or to discuss your requirements in more detail, contact a member of the team at today!