Car Finance Terminology Explained

By offering car finance here at West Motors, we help fund the purchases of our customers’ dream cars. It may be the one that they’ve been looking for all this time, that they otherwise may have been unable to afford; after all, the price of a car is a pretty big lump sum to pay all in one go! Part of what we do is ensure that anyone interested in financing their car on a monthly basis is given all the information they need to make their decision. The world of car financing can be a little daunting, to say the least! You’ll find that there’s quite a lot of finance-specific terminology that it’s important to understand before you sign on the dotted line. 

Below, we’ve collated all the most common words and phrases that anyone looking into car finance will come up against, and added some definitions in order to make them easier to understand. Let’s take a look at some of that finance terminology… 

APR 

You’ll see this acronym in place of Annual Rate Percentage, which is, in essence, the rate of interest you’ll pay on the amount that is leant to you. APR refers to the total cost of borrowing for a year, plus any fees that you have to pay in order to get the loan. 

Balloon payment

If you’re interested in taking out Personal Contract Purchase finance, you’ll have the concept of a balloon payment explained to you. This is an amount left at the end of the agreement that has been deferred throughout the term to make your monthly payments lower, and is due if you decide to keep the car at the end of the finance agreement. 

Credit score 

Your credit score is an indicator of your financial health put together by what are known as credit agencies using information gathered from banks, utility companies, and local authorities. The higher your score, the better with money you appear to be, and the more attractive you are to lenders. You’ll have more borrowing options with a higher score. 

Early settlement

If you find yourself able to pay back your car finance early, this is what’s known as an early settlement. You’ll need to approach your lender for an early settlement fee, making the car yours once it’s all paid off. 

You can find further information about early settlement in the small print of your agreement, so make sure you read and understand it before you sign if early settlement is something you may be interested in. 

Fixed rate 

Fixed rate repayments mean that the monthly amount won’t change depending on the interest rate, which, as we know, can be a little up and down! 

While you won’t benefit from interest rates that dip lower than they were when you signed your agreement, you also won’t be beholden to the unpredictability of high ones, so you’ll be able to budget accordingly. 

HP - Hire Purchase

A Hire Purchase is a way of financing the purchase of your next car. You’ll pay a deposit initially, and then repay the balance in monthly instalments. This is a great road to take if you ultimately want to own the car at the end of the term; once paid off, the car is yours! 

Find out more about hire purchase agreements. 

PCP 

A Personal Contract Purchase is another way to finance your car, and is built with flexibility in mind. At the end of the term, you can either give the car back with nothing to pay (mileage and condition depending), trade it in for another model, or pay the outstanding balloon payment in order to keep the car. 

Find out more about personal contract purchase agreements.

Residual value

The residual value is the amount of money that your car is worth at the end of your car finance agreement.

Term length 

This refers to the amount of time that you agree to pay in instalments for your car. 

Variable rate 

Remember the fixed rates that we talked about earlier? If you pay variable rate repayments, they’ll rise and fall with current interest rates. You can enjoy lower payments if they drop, or you’ll have to pay higher ones if they rise. 

Car finance at West Motors 

We’re committed to making car finance easy to understand here at West Motors, so we’re always available to talk it through with our customers. Find a car you like in our online showroom, and calculate the car finance you could be paying with our handy on-page calculators. You can either sign up to finance there and then, or get in touch with us to explore your options. 

For more information on car finance here at West Motors, head to this page of our website.