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Car Finance Jargon Buster

By Stephen Turvil | July 14, 2023


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All the terms you need to know when it comes to financing a vehicle.

Car Finance Jargon Buster

This Car Finance Jargon Buster explains the key terms and makes it easier to calculate how much a vehicle costs throughout its contract. 

Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) is the interest charged on the loan per-annum (including fees). The figure enables you to make fast comparisons between offers (assuming other factors are equal).

Balloon Payment

The Balloon Payment is part of a loan repaid in a lump sum at the end of the contract rather than monthly instalments. Its purpose is to slash the instalments, so it is often a large sum in comparison. 

Consumer Credit Directive (CCD)

The Consumer Credit Directive (CCD) harmonises the regulation of finance throughout Europe and protects consumers. Part of its purpose is to ensure drivers receive sound, easy to follow, advice.

Credit History

Credit History is a record of your borrowing. It might show you have a credit card that is paid in full every month and that your mortgage is up to date, for example. A loan provider considers such factors when deciding whether to approve finance and on what basis. 


Depreciation is the amount of money the vehicle loses from its market value between moments in time. Brand new to one year old, for example. It might be expressed in monetary or percentage terms.


Equity is the difference between a vehicle's market value and any outstanding loan (in your favour). If the value is £10,000 and you owe the finance provider £8,000, you have £2,000 equity. If the finance plan has run its course and you have equity, this sum can – on occasion – contribute toward the deposit of the replacement car.

Finance Agreement

The Finance Agreement confirms in writing the terms of the contract. It typically relates to the finance payments, cancellation and what happens at its conclusion, e.g. car returned.

Fixed Rate Interest

Fixed Rate Interest is static. Once set at (say) 5.8%, it remains that throughout the life of the contract even if the Bank of England base rate rises. This ensures the monthly payment cannot rise. 

Flat Rate

Flat Rate is the amount of interest charged on a loan. Unlike the Annual Percentage Rate (APR), it excludes fees. 

Gap Insurance

Gap Insurance recognises that your insurance company pays current market value for a vehicle if it is stolen or written-off. The problem is that any outstanding loan – for which you remain responsible – could exceed this value. Gap Insurance fills the void. 

Guaranteed Minimum Future Value (GMFV)

Guaranteed Minimum Future Value (GMFV) relates to certain types of finance such as Personal Contract Purchase (PCP). It is the estimate of how much a vehicle will be worth when the contract expires. Factors include the length of the term and likely mileage.

Hire Purchase

Hire Purchase is a finance plan that ensures ownership of the vehicle at its conclusion. It incorporates fixed payments over a fixed term.

Part Exchange

Part Exchange enables you to use your existing vehicle as part payment for its replacement. If the new car is worth £10,000 and the old car £2,000, the value of the loan can be slashed to £8,000.

Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is a flexible finance plan. Pay a deposit and monthly instalments, then defer the optional balloon payment to the end. At that point return the vehicle to its manufacturer or make the balloon payment to own it. PCP incorporates a mileage allowance with excesses charged at “x” pence per-mile. It must also be returned in reasonable condition – with allowances made for fair wear and tear - to avoid a penalty charge. 

Personal Loan

Personal Loan is a finance plan whereby you own the vehicle from day one (unlike Hire Purchase/Personal Contract Purchase). Money might be supplied by your bank before you spend it with the dealer.

Standard European Consumer Credit Information (SECCI)

The Standard European Consumer Credit Information (SECCI) has to be show to you before committing to finance. It follows a standard format to facilitate comparison between providers. It confirms the amount of credit, Annual Percentage Rate (APR), number of payments, etc. SECCI is also known as Pre-Credit Contract Information (PCCI).

Specialist Automotive Finance (SAF)

Specialist Automotive Finance (SAF) tests sales people to ensure they understand their products and offer good advice. It was introduced by the Finance & Leasing Association (FLA) to “boost professionalism” in dealerships and “increase consumer confidence”.

Negative Equity

Negative Equity is the difference between a vehicle's market value and any outstanding loan (not in your favour). If the value is £10,000 and you owe the provider £12,000, negative equity totals £2,000.

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