Car Finance Glossary

car finance glossary characters

Rates from 28.5% APR
39.7% Representative APR -
Subject to status and affordability

There is an awful lot of jargon involved in car finance, which makes it tricky to get your head around the facts of what you are being offered and what is the best option for your circumstances.

We have put together a list of key terms that are used within the car finance process. Treat the below list as your essential guide to understanding all that car finance jargon.





Representative example – Total amount of credit £8000, annual interest rate 20% (fixed), charge for credit £6711.44 (£6406.44 interest, £295 admin fee and £10 option to purchase fee), total amount payable £14711.44. Loan term of 48 monthly instalments, 47 payments of £306.28 and 1 final instalment of £316.28. 39.7% Representative APR – Subject to status and affordability

  • APR (Annual Percentage Rate) – This is the rate of interest and charges you’ll pay over a year, on top of your actual loan amount. The lower the APR percentage the better it is as you will be paying less each month.
  • Arrears – Money that is owed and should have been paid earlier.
  • Conditional approval – Your loan has been assessed and approved – in principle at least – though the lender needs more information before you can be granted formal, or ‘unconditional’ approval.
  • Credit agreement – A credit agreement is a legal document that outlines the terms of your loan, between you and the lender. Whether you’re taking out a mortgage, a personal loan or car finance, the creditor is legally required to provide a credit agreement and it must be signed by both parties.
  • Credit rating – This is a rating/score that assess the factors that affect your ability to manage your debts. Your credit rating is used by lenders to assess the risk of offering you credit. It’s calculated based on information in your credit report, such as your recent address history and any outstanding credit card and loan balances.
  • Default – Failure to fulfil an obligation, especially to repay a loan.
  • Deposit – A lump sum paid upfront, to secure the sale of a product or service. When you take out car finance, you may be required to pay a deposit depending on the Type of Agreement. Here at Go Car Credit we don’t always require a deposit.
  • Depreciation – A reduction in the value of an asset over time, due in particular to wear and tear.
  • Early settlement – When you pay off a credit agreement early, under the Consumer Credit Act the total amount you pay is reduced.
  • Equity – Equity is the difference between the value of the vehicle and the amount owed on the loan. For example, if your car is worth £10,000 and you have a balance of £4,000, you have £6,000 in equity. It is also possible to have negative equity – meaning you owe more money than the car is worth.
  • FCAThe Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom, but operates independently of the UK Government.
  • Fixed rate – This is where the interest rate on your loan doesn’t fluctuate. This makes predicting your repayments more accurate.
  • Flat rate – The Flat Rate interest is the percentage of interest charged on the initial loan amount of every year you have the loan for. With a Flat Rate, the interest is charged on the original amount of money you borrowed, and doesn’t take into account what has been repaid.


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  • Hire purchase – Also sometimes known as HP is that you pay to hire a car over a period of time before eventually having paid enough to own it outright.
  • HPI check – This vehicle check provides information to ensure the vehicle you want to buy: isn’t already financed elsewhere.
  • Interest rate – This is the price added on top of the money you borrow. Interest rates often rely on your credit history.
  • Joint application – When you apply for joint car finance with another person, using both your personal details to support your application.
  • Legal ownership – A term used to accredit the legal rights of an asset, to either a business or an individual.
  • Lending criteria – Financial characteristics the lenders look at when determining whether to lend to you. This can include income, asset’s, expenses and credit history.
  • Negative equity – Happens when the current value of your car is less than the amount needed to pay off the finance on it.
  • Option to purchase fee – Is an optional fee, which is applicable only if you purchase a car. The finance company will charge this fee at the end of the term. You need to pay this fee to transfer the vehicle legally to your name.
  • Part exchange – Is when you trade in your current car and put the proceeds towards the purchase of your new vehicle.
  • Secured loan – This is where a lender will take an asset should the loan not be paid, for example if your loan is secured against your car, the lender has the right to repossess the car should you default on payments.
  • Settlement – The amount you continue to owe on the sum you have borrowed – plus interest.
  • Term – The length of time you need to pay back your loan. We offer terms from 24 months to 60 months.
  • Total amount payable – Total amount payable is the overall amount paid to purchase a car through a finance agreement including interest.
  • Voluntary surrender – Under a voluntary surrender, you give back the car but still owe whatever is left to pay.
  • Voluntary termination – Is the legal right of a borrower or customer to cancel an agreement early. It means returning the vehicle and then only being liable for half of the overall agreed finance amount.
  • Wear and tear – Is damage that naturally and inevitably occurs as a result of normal everyday use or aging of the vehicle.

If you have questions regarding car finance with us why not visit our car loans frequently asked questions page or call us on 01925 696 373.

Alternatively, if you feel you have enough information why not apply for car finance with us. Our quick and simple online application only takes 2 minutes.

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