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Car finance glossary & jargon buster

We’ve created our car finance glossary to help you understand some of the most common car finance terms. Use our car finance glossary and get ahead of the game and make an informed decision when getting a car on finance.


Acceptance Fee – Some car finance lenders or car finance brokers charge customers to cover their costs.

Acceptance Rate / Approval Rate – This is how many applications have been approved and paid out by the broker.

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.


Balloon Payment – A balloon payment refers to the final payment, usually associated with PCP car finance deals. The balloon payment will need to be paid before you can obtain ownership of the vehicle, or you can refinance a balloon payment to help spread the cost.

Bankruptcy – Bankruptcy is a legal proceeding which allows you to be relieved from your debts that you cannot afford to pay back.

Base Rate – This is the rate of interest set by the Bank of England and determines the lowest rate the lenders will charge interest at.

Broker – A broker is essentially the middleman between you and the lender and helps to find the best deal for your circumstances. In terms of car finance, find out how using a car finance broker could benefit you.


Car finance – Car finance is a legal agreement which entitles a consumer to borrow money from a lender to buy a car or have the loan secured against a vehicle. The car finance is then paid back in monthly instalments till the end of the agreement. There are a number of car finance deals to choose from and you can have options around owning the car at the end of the agreement. Find out more about car finance and how it works.

Car leasing – Unlike car finance, you will never have the opportunity to own the car at the end of the car lease. Instead, you will make monthly payments till the end of the term and then hand the car back.

Conditional Loan – This is where you agree to buy a car at the beginning of the car finance agreement, once you have paid your monthly repayments ownership of the vehicle automatically passes to you. Find out more about conditional loans.

Credit Check – A credit check is performed by lenders to see how you’ve handled credit in the past. Whilst it can be possible to get a car on finance with no credit check, it can sometimes mean you get charged a higher interest rate. Find out more about credit checks here.   

Credit History / Credit Report – This is a historical record of the credit you have taken out and your repayment of the debts. It typically includes credit from banks, credit card companies, governments etc. Find out more about the information listed on your credit report.

Credit Rating / Credit Score – This is a rating/score that assesses the factors that affect your ability to manage your debts. Generally, the better you have been at paying back borrowed credit in the past the better deal you will get. Here at Refused Car Finance, we are a bad credit finance specialist, therefore we can approve applications even if you have a really poor rating. Find out how credit scores and car finance work.


Debt Management Plan – A Debt Management Plan (DMP) is an agreement between you and your current finance lender which allows you to change your current payment schedule and switch it to one that you can afford.

Deposit / No Deposit – When taking out car finance you sometimes have the option to put down a lump sum at the start of a contract, deposits are often not refundable. However, many car finance deals can come with no deposit needed and still benefit from affordable monthly payments. 

Depreciation – Depreciation is the loss of value of a product over time. Cars can depreciate at different rates, and this means they can be worth less when your car finance agreement ends. It can be worth exploring which cars depreciate at the slowest rate and what depreciation can mean for you.


Equity – In reference to car finance, equity is the difference between what your car is worth and how much you owe the lender. Negative equity is when you owe more than your car is worth. This can usually happen if you fail to stick to the rule of your agreement or if you miss payments.


Financial Conduct Authority – The Financial Conduct Authority or the FCA is the financial regulator in the UK that is responsible for ensuring finance markets are competitive, fair, and honest. Refused Car Finance is conducted and regulated by the FCA.

Financial Ombudsman – The Financial Ombudsman Service (FOS) is a free service that settles disputes and complaints between consumers and any businesses that provide financial services.

Fixed Interest Rate – This is where the interest rate on your loan doesn’t fluctuate. This makes predicting your repayments more accurate.


Guarantor – A guarantor is a person or thing that acts as a guarantee of payment, for example, a relative may guarantee they will pay your loan should you not be able to. Refused Car Finance can offer car finance with or without a guarantor. Find out more about guarantor car finance loans.


Hard search credit check – A type of credit report check which is carried out by a lender which could result in lowering your credit score.

Hire Purchase (HP) – This is a type of car finance, to find out more please visit our hire purchase car finance page.


Individual Voluntary Agreement – An Individual Voluntary Agreement or IVA is an arrangement you can enter into to avoid bankruptcy and pay back your debts over an affordable and agreed period. It can be harder to get approved for car finance with an IVA but it’s not impossible.

Inflation – This is an increase in prices and a fall in the purchasing value of money.

Interest Rate – This is the price added on top of the money you borrow. Interest rates often rely on your credit history.


Joint car finance – A joint car finance application is when you apply for finance with someone else and you are both responsible for meeting the repayment schedule.


Lending Criteria – Lending criteria relate to financial characteristics the lenders look at when determining whether to lend to you. This often includes income, assets, expenses, and credit history.

Loan Agreement – a contract between you and your lender that states what you both agreed to when the loan was set up.

Loan Term / Loan Period – the length of time you need to pay back your loan.


Monthly Repayments – the amount of money you are required to pay back every month. Find out how to lower your car finance monthly payments


Over-payments – Paying more than the amount due.


Per annum – Per annum or PA means ‘per year’ and is usually used in association with mileage or interest rates.

Personal Contract Purchase – a type of car finance, find out more about personal contract purchase finance.

Personal Loan – also a type of car finance, find out more about getting a personal loan


Rate of interestYour rate of interest offered is the amount a lender charges you for borrowing and is expressed as a percentage.

Refinanced / Refinancing – When you already have a finance contract, but you renew it to get a better deal. Find out more about refinancing your car loan or help with refinancing a balloon payment.

Representative APR The Representative Annual Percentage Rate is used to show that at least 51% of customers achieved the advertised rate or lower.

Representative example A representative example is a term used in financial advertising that shows a customer the typical cost associated with borrowing. You can find a representative example in the footer of this webpage.


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 repress the car should you default on payments.

Soft search credit check – This is where you, your potential employer, a financial institution you already do business with, or a credit card company that is conducting a pre-approved check, look at your credit report.


Unsecured Loan – the opposite of a secured loan, this loan is rewarded to a prospective borrower due to their creditworthiness. This is a higher risk for the lender but lowers it for you. However, if you have extremely poor credit this may not be an option for you.