Annual mileage
The agreed amount of mileage a car on finance is allowed to drive each year. You’ll be charged extra if you go over the agreed limit. The added charge is usually a few pence per mile, but can quickly add up over the term of an agreement if you routinely drive more than the agreed mileage.
APR
This is how much extra you’ll have to pay back on top of the amount you borrow. It includes not only the interest, but also any fees and charges your agreement will need you to pay. This is usually shown as a percentage of the amount borrowed. It helps you to easily compare your finance options by using their APR instead of just their interest rates.
Balance financed
This amount is the selling price of the car minus your deposit and any part-exchange allowances made. You will need to borrow this figure as the finance on the vehicle.
Balloon payment
A lump sum deferred to the end of certain finance agreements e.g. Lease Purchase and Personal Contract Purchase. Also known as the vehicle's Guaranteed Minimum Future Value, it must be paid at the end of the term to take legal ownership.
Depreciation
The speed and extent at which the vehicle loses its value over time. All vehicles will eventually be subject to depreciation – the rate at which this happens will vary from model to model.
Early settlement
Paying off the finance agreement before the scheduled end of the term. Settling the balance on the vehicle early can save on any interest due.
Equity
The difference between the actual market value of the car and the amount of money you owe under your finance agreement.
GFV
Guaranteed future value – this is the minimum the car will be worth at the end of the finance term if it is in good condition and has not covered more than the agreed mileage. It may also describe the balloon payment due at the end of some agreements.
Gross and net incomes
Gross income is your total income before deductions like tax and National Insurance are taken into account. Net income, on the other hand, is the value remaining after deductions. Both of these values may be asked for when you complete your car finance application.
Hire Purchase
Also known as HP - Hire purchase is a finance agreement where you’ll agree an initial deposit, and then pay off the remaining value of the vehicle and interest in fixed monthly instalments
Personal Contract Hire
Also known as PCH - Personal contract hire is a form of long-term rental which is perfect for those who know they will be looking to move on to another car once the agreement period is over. You lease the car for an agreed period, making fixed monthly payments. When the contract expires, you simply hand the car back without any further obligation (subject to vehicle condition and mileage).
Personal Contract Purchase
Also known as PCP - Personal contract purchase is when the finance is repaid with monthly payments and often starts with an initial deposit. You don’t own the car unless you decide to pay the optional balloon payment at the end, so you will need to keep it in good condition. You will need to agree the amount of mileage you plan to cover in the car. Deferring a large amount of the vehicle’s value to the end of the agreement can help to reduce your monthly payments. It might increase the total amount you pay, compared to other types of finance - if you decide to keep the vehicle at the end of the agreement.
Personal Loan
Where you borrow the full amount from either a bank, building society or other finance company, for the car and own it from day one. You then make monthly repayments to pay back the debt. You can take out secured or unsecured loans.
Residual value
The value of the model when the finance agreement is finished. This is based on the mileage, condition, resale value, and age of the vehicle at the end of the agreement. This is not always guaranteed and will depend on the terms and conditions of the contract you select.
Secondary rental
When a leasing agreement ends, you can typically arrange a secondary rental to continue using the vehicle. This is often in the form of either monthly payments or a set annual rental.
Total repayable
This is the total amount you’ll repay to the lender including the original loan amount, the interest, and any fees.
Trade value
This is how much the car would be worth if it was bought by a dealer, specialist car-buying sites, or sold at a vehicle auction.
VIN
The 'Vehicle Identification Number', used to track the model's identity and prevent fraud. Unlike the number plate, this unique number can never be changed.
Discover many car finance options at Lookers. Get in touch with any of our dealerships today.
