Sometimes lenders charge for processing your finance agreement. They cover their administrative costs by charging you an ‘acceptance fee’.
Approved in Principle
When you’ve been accepted for finance, but your finance provider has yet to finalise your contract, at this point you’re ‘approved in principle.’
‘Annual Percentage Rate’ is a percentage figure indicating the cost of borrowing. This includes interest and other fees.
Bank Of England Base Rate
The ‘Base Rate’ is the standard from which lenders calculate interest rates. Currently, interest rates are at 0.5%, which means borrowing money is relatively cheap.
A broker is a company such as Zuto or Jigsaw, who search for suitable lenders, repayment plans and then set up your finance contract.
Cost of Credit
This is the total amount you’ll be charged for your finance over the course of your contract, including fees and interest.
A ‘county court judgement’ can be put in your credit file if you’ve failed to repay money in the past. This impacts your credit rating and is likely to affect your ability to get accepted for finance.
Credit Referencing Agency
These are companies that research your credit history. Thier objective is to establish your credit rating and ensure that you have a suitable.
This is a score indicating your likelihood to repay your finance. It’s based on your history of borrowing money and the timeliness in which you repaid.
Once you’ve applied for finance, a credit referencing agency will perform a credit search to establish your credit score. This looks into your financial history, detailing your ability and timeliness in repaying credit.
This is the initial layout you put down on the vehicle. The larger the deposit you put down, the lower your monthly payments are likely to be.
The older your car gets, the more it loses in value. Depreciation is the difference between what you paid for the car and how much it’s worth now. You’ll always get hit by higher depreciation costs if you buy your car new, with an average of 40% losses in the first year alone.
Once one of our finance partners has found you a lender, this lender may charge you an additional ‘document fee’. It’s self-explanatory, as it’s a fee for the tailoring documentation to fit your repayment plan.
Equity is the amount of the car you own. With a HP finance option, you’ll own equity of the car once you’ve paid all the monthly instalments. With PCP, you’ll own equity of the car once you’ve paid off the lump sum at the end of the agreement.
Financial Conduct Authority
The ‘FCA’ is the UK regulator for all financial services, ensuring that lenders, brokers and dealers are compliant. For more information, visit the FCA website.
A ‘fixed rate’ finance agreement is one in which the interest (APR) is set in advance, rather than bound to the Bank Of England Base Rate. It means that even if interest rates rise, you’ll always be paying the same.
Flat rate interest is the percentage of interest charged on the initial loan amount each and every year the loan is in place.
When you buy a car, depreciation costs may mean the car is worth less than the outstanding amount you’ve borrowed. If your car’s written off, you may be exposed to the difference. GAP insurance covers the gap between the amount your car’s worth and the amount you still have to pay back.
Guaranteed Minimum Future Value
Sometimes abbreviated to GMFV, this is the final payment you make on PCP should you want to take ownership of the vehicle. With a PCP rate, you pay for the depreciation of the car monthly, with interest. The GMFV is equivalent to the remaining value of the car.
If you’re young, have a bad credit rating, or haven’t taken out credit before, a guarantor can help you secure finance. They co-sign your contract, guaranteeing to pay should you be unable to keep up with the repayments.
This is when a credit reference agency looks into the history of your credit file. A ‘hard search’ provides a comprehensive list of your financial history. Unlike a ‘Soft Search’, with a ‘Hard Search’ is visible on your credit file and could impact your ability to obtain credit in the future.
Hire Purchase Agreement
This is the traditional way of financing your car. You pay monthly instalments, with interest. This hires the vehicle for the length of your contract, which lasts anywhere between 12-60 months. At the end of the contract, you take ownership of the car.
Interest is the amount the amount your lender charges you for borrowing, expressed in an APR percentage. The amount can differ depending on your credit history, the length of the contract and the car you’re buying.
It is possible for two or more people to apply for a loan or finance together. You can add a second borrower to your application so that you are both responsible for repaying the loan or finance agreement. You can apply for finance with one or more people on the contract. If you add another borrower, the responsibility of repaying is spread between you. You then become a joint applicant.
If the amount you owe your lender is more than the value of your car, you’re in what’s called ‘negative equity’.
‘Option to Purchase’ Fee
Primarily on PCP, there is an ‘option to purchase’ fee, also known as ‘Guaranteed Minimum Future Value’ (GMFV). This is option is towards the end of the contract and means you’ll take on ownership of the vehicle.
Personal Contract Purchase (PCP)
Known as ‘PCP’, this is an alternative finance option to ‘Hire Purchase’. You pay in monthly instalments for the depreciating value of the car, plus interest. This means PCP is usually much cheaper than HP. However, at the end of the contract (usually lasting between 24-60 months), you don’t automatically take ownership of the car, unless you pay the final GFMV lump sum.
When you finance a car, either on PCP or HP, you don’t own the car throughout your contract. Should you fail to keep up with the payments, your lender may decide to take the car back. This is called repossession. For a lender to repossess your vehicle, they need to serve you with a Default Notice. Then, they must apply for a repossession order from a court. However, if you’re less than a third of the way through your finance contract, they don’t need this.
This is an advertised rate that is ‘representative’ of what will be offered to over half of customers. However, depending on certain variables including length of contract, credit rating and the car you’re borrowing for, the rate may be different.
This is how much your car is worth at the end of your finance contract.
This is a loan that’s based on an asset. Obviously, when you’re financing your car, it acts as the asset. If you don’t keep up with your repayments, the car can then be repossessed.
Otherwise known as a ‘Quotation Search’, this is an initial finance check by a credit reference agency, to give you an idea as to whether you’re going to be accepted for finance. Although not as detailed as a ‘Hard Search’, with a ‘Soft Search’ there is no trace upon your credit file.
This is self-explanatory. The ‘Total Repayable’ is the complete cost of your finance agreement, including interest and any additional fees.
Also know as a floating rate, variable rates are not fixed, but instead indexed upon either the Bank of England Base Rate, or the London Inter Bank Offered Rate (LIBOR). This means that your interest payments will vary depending on market conditions. You end up paying less if interest rates go down, or more if they go up.