Choose your nearest store location

To be put in touch with one of our friendly and informative sales staff via the Live Chat facility,
please select the store nearest to you.

Contact Centre opening hours:
Mon-Fri 8am to 9pm , Sat 9am to 7pm, Sun 10:30 to 5pm

Print Page

Financial terms explained

At CarShop we can't stand jargon. But sometimes, when we're talking about financial matters, it's hard to avoid using the occasional bit of 'legal speak'.

So here's a handy guide to some of the terms you might come across, along with explanations in the plainest English possible.

Want to Know More?

Leave us a few details and your question and we will get back to you. Or ask one of our Business Specialists in-store for more details.


Thank you

Thank you for your enquiry. Rest assured that our agents are on it and will contact you shortly.

Something went wrong

We're sorry; there seems to have been a problem submitting your enquiry. Please contact us.

1. Acceptance fee

The amount charged by the lender for the administrative costs of setting up the loan and sending out relevant documentation.

Back to top ^

2. APR

Short for Annual Percentage Rate. This is the amount of interest charged on the loan, including all administrative fees. All lenders must calculate the APR in the same way, which makes it the easiest way to compare loans at a glance.

Back to top ^

3. Poor credit history

If you have missed mortgage payments, or have overspent on your credit card, then you may be classified as having poor credit history. Borrowers with a poor credit history are more likely to be turned down for a loan, or if they are accepted may have to pay a higher rate of interest. (See also credit rating.)

Back to top ^

4. Balloon payment

If your loan agreement leaves a substantial portion of the amount borrowed outstanding until the end of the term, this final amount is referred to as the balloon payment. You can expect a balloon payment if you fund your car with a Personal Contract Purchase (PCP). (See alsoMinimum Guaranteed Future Value.)

Back to top ^

5. Credit rating

Before approving a loan, lenders will look at your previous borrowing, employment history, earnings and whether or not you own your own home. Factors like these determine your credit rating. The better the rating, the better the chance of being approved for a loan and the better the interest rate you will be charged. (See also Poor credit history.)

Back to top ^

6. Equity

If the amount your car is worth is greater than the amount owed on the car, this figure is called the equity.

Back to top ^

7. Fixed rate

If the interest rate is set and cannot change during the agreement, this is known as a fixed rate.

Back to top ^

8. Flat rate

An alternative method of calculating interest. Some lenders will quote a flat rate instead of the APR, since it makes the loan appear cheaper, because administrative costs are not included. However, you should insist on being quoted the APR so you can compare like with like.

Back to top ^

9. Halves

Once you have completed half of the total amount payable under a HP or PCP agreement you have the option to terminate the agreement and hand the car back to the finance provider - provided the vehicle is in reasonable condition and no arrears are owed.

Back to top ^

10. Hire Purchase (HP)

The most straightforward form of car finance. The borrower puts down a deposit, and the balance is divided into a series of monthly payments. The loan period varies, typically between 12 months and five years.

Back to top ^

11. Interest

The money which is paid back in addition to the amount borrowed. This is where the lender makes their money. You could be quoted a flat rate or an APR. It's the latter of these two which should be used when comparing loans.

Back to top ^

12. Guaranteed Future Value (GFV)

This is the minimum amount a lender decides a car will be worth at the end of a PCP agreement. In practice this figure is deliberately set low so that there will be some equity between the MGFV and the true value of the car. The difference in these figures is the equity, and can be used as a deposit to set up another agreement.

Back to top ^

13. Negative equity

If you owe more on the car than it's worth (see also equity).

Back to top ^

14. Option to purchase fee

The fee which is due at the end of a Hire Purchase agreement to cover the cost of transferring legal title for the car from the finance house to the borrower.

Back to top ^

15. Credit Facility Fee

The fee which is due at the end of a personal loan agreement.

Back to top ^

16. Personal Contract Purchase

Known as a PCP for short, a Personal Contract Purchase reduces the monthly payments by deferring a substantial portion of the loan until the end of the agreement. This final payment (called the balloon payment of MGFV) doesn't have to be paid if the borrower returns the car. Alternatively, the borrower can make the payment to own the car or use the equity as a deposit against another car.

Back to top ^

17. Sub-prime finance

Car buyers who are turned down by mainstream lenders may still be able to get credit from companies which specialise in loans to customers with poor credit histories. This sector of the market is referred to as sub-prime finance.

Back to top ^

18. Term

The period of time over which the loan is repaid. Typically 12-60 months.

Back to top ^

19. Thirds

Once you have paid at least one third of the total amount payable under your agreement the finance provider may not take back the goods without your wishes unless they obtain a court order.

Back to top ^

We use cookies

We use cookies on this site to give you the very best user experience. Some of our cookies are essential, and the site will not work as expected without them. By using our site you accept the terms of our Cookie Policy