Car finance comes with its own vocabulary. This A-Z glossary explains common terms in plain English so you can understand exactly what you're signing up for.
The total cost of borrowing expressed as an annual percentage, including interest and fees. Allows comparison between finance products.
An insurance term where the policy pays out a pre-agreed amount in case of total loss, rather than the market value at the time of claim. Common for classic and collector cars.
A one-time fee charged by some lenders for setting up the finance agreement. May be added to the loan or paid upfront.
A large final payment due at the end of a finance agreement. Common in Lease Purchase and PCP to reduce monthly payments.
An intermediary who arranges finance on behalf of customers, typically with access to multiple lenders. Hypercar Finance operates as a broker.
The principal amount borrowed, excluding interest and fees.
A numerical rating of your creditworthiness based on your borrowing history. Higher scores typically result in better finance rates.
An upfront payment made at the start of a finance agreement, typically expressed as a percentage of the vehicle price (e.g., 10-20%).
The reduction in a vehicle's value over time. Modern cars typically depreciate, while classic/collector cars may appreciate.
Paying off a finance agreement before the end of the term. A settlement figure is calculated based on remaining capital plus an early settlement fee.
The difference between your car's value and any outstanding finance. Positive equity means the car is worth more than you owe.
Borrowing against the value of a vehicle you already own, typically to fund other purchases while retaining ownership of the original car.
An interest rate that remains constant throughout the finance term, providing predictable monthly payments.
Interest calculated on the original loan amount for the entire term. Appears lower than APR but doesn't account for reducing balance.
In PCP agreements, the guaranteed minimum value of the vehicle at the end of the term. If the car is worth less, the lender bears the risk.
Insurance that covers the 'gap' between what your car insurer pays out (market value) and what you owe on finance in case of a total loss.
A finance agreement where you pay fixed monthly payments over an agreed term, gaining full ownership after the final payment.
A full credit check that appears on your credit file and may affect your score. Performed when you formally apply for finance.
Similar to HP but with a balloon payment at the end. You own the car from day one, with lower monthly payments than HP.
The loan amount expressed as a percentage of the vehicle's value. A £400,000 loan on a £500,000 car is 80% LTV.
In PCP agreements, the maximum annual mileage permitted. Exceeding this incurs excess mileage charges at the end of the term.
When you owe more on your finance than the car is currently worth. Can make part-exchanging or selling difficult.
A small fee (typically £1-10) payable at the end of HP or PCP to transfer legal ownership to you.
A popular finance product with lower monthly payments and a balloon (GMFV) at the end. Options to return, keep (pay balloon), or part-exchange.
The original amount borrowed, before interest is added.
The predicted value of a vehicle at the end of a finance term. Used to calculate balloon payments in LP and PCP.
Replacing one finance agreement with another, often to access better rates or release equity.
A preliminary credit check that doesn't affect your credit score. Used to assess eligibility before a formal application.
A loan secured against an asset (the vehicle). If you default, the lender can repossess the asset.
The length of the finance agreement, typically 24-60 months for vehicle finance.
The full amount you'll pay over the finance term, including deposit, monthly payments, any balloon, and fees.
The process lenders use to assess risk and decide whether to approve finance. Considers creditworthiness, affordability, and the asset.
An interest rate that can change during the finance term, typically linked to the Bank of England base rate.
Your legal right to end a regulated HP or PCP agreement once you've paid 50% of the total amount payable.
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