A guide to all those Car Loan terms and phrases that may or have confused you.
A
APR (Annual Percentage Rate)
The total cost of borrowing, this enables you to compare offers from different lenders. The APR takes into consideration all costs including the repayment of capital borrowed, interest and any fees charged.
Annual Mileage
The number of miles the car or vehicle is driven per year.
Adverse Credit
A person who has had problems in the past with their credit, for example, late payments, bankruptcy or CCJs.
B
Balloon Payment
A larger payment made at the end of the contract, this is used as a way of reducing monthly payments.
C
Cancellation
The stoping or finishing of your contract or agreement
Contract Hire
The hiring of the vehicle for a certain period of time at a pre-determined cost, the vehicle is then returned to the lender at the end of the contract period.
Consumer Credit Licence (CCL)
A License issued by the Office of Fair Trading to businesses operating in the consumer credit industry. The licenses are issued under The Consumer Credit Act as part of the rules for the granting and enforcement of credit. These licences are designed to protect those who purchase goods or services on credit terms.
Car Loan
A loan secured against the vehicle being purchased, the vehicle is used as security and in the event of payments not being paid, the vehicle will be repossessed.
D
Default
A failure to pay an agreed financial commitment, i.e a loan payment
Dealership
A dealership is a person or company selling vehicles from trade premises. This doesn't include prvaite dealers trading from home.
Driving Licence
A legal document issued by the DVLA after passing a number of tests. This licence enables you to legally drive a vehicle and can also be used as a proof of identification.
E
Early Settlement
This is the repaying of all costs prior to the pre-agreed end of the contract. Customers who settle early may incur additional costs.
Engine Size
This is the capacity of the vehicles engine measured in cubic centimeters.This is one of the standard ways of measuring the power of the vehicle.
F
Finance
The supplying of money or capital or to obtain money or credit.
Fees
These are additional costs sometimes payable up-front or added to the loan. Fees can include administration fees, document fees and transfer fees.
Flat Rate
The flat rate refers to the level of interest being charged for the capital being borrowed.
G
GAP Insurance
This is a insurance which protects you in the event of total loss damage and the vehicle being written off by your general motor insurer. Once the vehicle is written off you will need to settle the loan and there can sometimes be a shortfall between the motor insurers payment to you and the amount owed on the finance. This insurance settles any difference between these to figures.
Guarantor
A guarantor is a person added to the agreement to provide extra security on the loan. The guarantor would be liable to pay the loan in the event of the main hirer not making payments.
H
Hire Purchase
This is a form of finance, the cost of the vehicle is broken down into more affordable monthly installments. Once all monthly installments have been made, the vehicle then belongs to the customer.
I
Insurances
Insurances aim to protect and provide security against events which causes loss, damage or have negative effects. This insurance is provided by an insurer in exchange for payment.
J
Joint Hirer
A joint hirer is a second person on the agreement alongside the main hirer. They share responsibility in ensuring that all monthly installments are paid.
K
Key Facts Illustration (KFI)
This is a documents outling the key points of the loan and your demands and needs as a customer.
L
Loan
To lend money from someone or an organisation, usually interest is charged.
M
Motor Insurance
This is the compulsory insurance that all drivers need. This covers the driver in the event of an accident.
Mileage
This is a measure for the amount of distance a vehicle has been driven.
Motortrader
A person or company who sell vehicles for a living with intent to make profit.
O
Option to Purchase Fee
This is an additional fee sometimes charged by the lender. It refers to the signing over of ownership to the customer once all payments have been made.
P
Payment Protection Insurance (PPI)
This is an insurance which protects the customer from being unable to pay their monthly installments due to accident, sickness or unemployment. This is also known as ASU Insurance and LASR Insurance.
Proof of Earnings
These are usually required with all car loans. Generally payslips, bankstatements or an accountants or employers reference will be used as a way of proving affordability for the loan amount being requested.
Provisional Licence
This is a legal document supplied by the DVLA, this entitles the holder to driver under supervision of a fully qualifed driver or instructor. This can also be used as a form of Identification.
R
Registration Plate
This is a sequence of numbers and letters assigned to the vehicle as a unique identification method. This is also known as a number plate and is usually displayed on both front and back of the vehicle.
Refunds
This is the paying back of monies to the customer due to a cancellation of a item, policy or agreement. Each lender normally has a refund policy which can differ significantly.
Retail Value
This is the suggested selling value of the vehicle. This value takes into consideration the mileage covered by the vehicle
T
Trade Value
The suggested buying price for the vehicle which a dealer should pay, this also takes into consideration the mileage of the vehicle.
Third Party Insurance
This is a form of insurance which only covers damage or injuries to the third party vehicle or persons, not your own vehicle or injuries sustained yourself.
V
VIN Number
This is another unqiue identification code consisting of numbers and letters, every vehicle has a VIN Number which can sometimes be known as a chassis number.
Voters Roll
This is a register of people who are eligible to vote, this can be used as a form of traceability along with their credit history.