Car Finance Glossary

We recognise that navigating the world of car finance deals, offers and choices can sometimes feel a little confusing. Of course, our friendly staff are always available to help and guide you through the process. To help further and bring even more clarity, we’ve created this handy glossary of car finance terms and phrases. We hope you find it useful.

0% Finance

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This is the name we give to a car finance deal that charges no interest at all. You simply split the cost of the car over a fixed term of monthly repayments, with no additional interest charges to pay.

Agreement

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This is the legally binding document which you sign once the finance deal has been agreed.

This document sets out all the arrangements of your finance deal, including the amount financed, any charges and your schedule of repayments. By signing this, you legally agree to its terms.

Amount of Credit

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This is the amount you are borrowing from the car finance company to buy your car.

Remember, this is not the same as the total amount payable, which also includes interest and fees.

Annual Percentage Rate (APR) is the annual % you’ll be charged to borrow the money to buy your car.

If you already have finance, such as a loan, mortgage or credit card, and you’ve missed or you’re behind on any payments, the amount you are behind is called the ‘arrears’.

This is the amount left to pay on your account. On a fixed agreement, this will change each month as you make your regular payments.

Balloon Payment

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This is the term used to describe the deferred amount of the loan at the end of your MotorLoan Balloon agreement (the loan version of PCP).

It isn’t a guaranteed value, it’s just the amount deferred to your final payment to help reduce your standard monthly payments.

Bankruptcy

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Bankruptcy is a form of insolvency administered through the courts by the official receiver. You can be declared bankrupt if you owe more money than you can afford to repay.

Car Finance

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This is a financial arrangement that lets you borrow an agreed amount of money to help you pay for a car from Stoneacre.

If you’re unable to repay a loan or credit card, the provider may take you to court to recover the money. If this happens, a County Court Judgement (CCJ) could be awarded against you.

This gives the creditor the right to take action to collect their money. A CCJ can often deter other lenders from wanting to lend you money.

Conditional Sale

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A conditional sale/charge agreement is similar to a Hire Purchase. The interest rate is fixed for the full term of your finance agreement, and the amount borrowed is spread equally into monthly payments until the total amount payable is repaid.

The loan is secured against the car. This means the lender retains ownership of the car until the finance is fully repaid. Once this happens, ownership is then automatically transferred.

You cannot sell the car or trade it in as part-exchange until the finance agreement is fully settled.

Contract Hire

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Contract Hire helps us provide a cost effective way to fund business vehicles. For a fixed monthly payment, you can lease a fleet of brand new cars and vans, without having to find the capital to purchase them.

If you are buying for personal use, please refer to PCH.

Credit Broker

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A credit broker links people looking for consumer credit with specialist companies willing to provide it; usually for a commission or fee. Essentially, a broker is the go-between person that passes your details to the lender to get you the best possible deal.

Credit Check

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Before deciding whether to provide car finance, most lending organisations will check your credit reference file. This is often called a ‘credit check’.

Credit Rating

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Most lenders will use the content of your credit reference file and other factors relating to you and your personal circumstances to give you a ‘credit rating’. This will then be used to help decide whether to provide you with finance, or not.

Credit Reference File

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This is a record of your current and past credit agreements, compiled and stored by a credit reference agency, showing your repayment records.

This file is often viewed by finance companies during a ‘credit search’ when you apply for a loan, mortgage, credit card, etc.

If you’re unable to make repayments on an existing financial agreement, the lender/creditor may record this on your credit reference file as a ‘default’.

Like a CCJ, a ‘default’ can deter many lenders from wanting to lend you money.

Quite simply, a deposit is a down-payment you agree to make as part of your car finance agreement.

This can be a significant amount, in which case you can use the value of your current car in part-exchange. Or it can be as little as a single monthly repayment.

Depreciation

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This is the term used to help describe a car’s reduction in value over a period of time; usually the length of a car finance agreement. All cars reduce in value, often as a result of factors such as age, mileage driven, condition, etc.

Electoral Roll

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All UK citizens have the right to vote in local and national elections. To register to vote, you should apply to the Electoral Roll.

This is a fully accessible database that many lenders also check to confirm that you live at the address stated on your credit application.

Equity is the amount of value you have in your car, once the amount of finance is subtracted. For instance, if your car is valued at £12,000 but you still owe £8,000 in finance, then your car’s equity is £4,000.

If the amount of finance you still owe is more than the car’s total value – the car is worth £10,000 but you owe £10,500 = -£500 – this is called negative equity.

Excess Mileage

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Finance agreements, including PCP or Contract Hire, have a mileage allowance spread across the length of the contract. This helps to keep depreciation low and the value of the car high at the end of the agreement, so the amount you have to finance remains low.

If you exceed your mileage allowance at the end of the agreement, you may have to pay around 10-20 pence per mile for every mile over this fixed allowance.

The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. Its role includes protecting consumers, monitoring the conduct of lenders and providers, plus keeping the industry stable.

The Guaranteed Minimum Future Value (GMFV) is the forecasted value of the car at the end of the credit agreement. To own the car outright, this amount needs to be paid, plus any fees that may apply.

Guaranteed Finance

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Guaranteed finance is often promoted by car dealers and online brokers, yet the phrase is simply used to tempt customers into applying for finance, at which time the 'guarantee' fails to materialise.

At Stoneacre, we never offer or promote guaranteed finance.

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