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

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.

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.)

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 also Minimum Guaranteed Future Value.)

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.)

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

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

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.

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.

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.

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.

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

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.

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

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.

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.

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

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.

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