Trying to understand car finance can be confusing, especially with all of the car finance jargon involved which can be difficult to make sense of. Car dealers can prey on the confusion of their buyers and make them think they’ve got a top-quality deal when really, that isn’t the case. If you would like to fully understand as much as you can about car finance before purchasing a loan, read Car Finance Plus’ car finance glossary for all of the information you need.
This is a contract between a lender and a borrower which is legally binding and sets out the payment schedule for the loan the borrower is receiving. It shows the exact interest, fees and charges, as well as both sides rights and responsibilities. You should always make sure you are 100% confident you know what you are signing and are willing to be legally bound by all of its terms and conditions.
An acceptance rate is how many applications for a loan have been approved and payed by the lender. The higher the brokers acceptance rate, the more likely you are to be approved for a loan.
This stands for Annual Percentage Rate. It is an overall figure which shows the annual cost for borrowing the money and allows you to compare different finance offers so that you understand the total cost for borrowing the money.
This is a word you will hear when you are behind on your payments. If you are ‘in arrears’, you are behind your payment schedule and will have to pay extra in order to get back on track to the agreed plan.
A net amount, after all payments and charges have come out of your account.
A lump sum payment that is paid at the end of some financing agreements. This allows you to take ownership of the car and the amount is agreed at the start of the agreement.
This is the rate of interest set by the Bank of England and determines the lowest rate the lenders will charge interest at.
A conditional loan is when you agree to buy a car at the beginning of the finance agreement, which means that once you have paid your monthly repayments, the vehicle is yours.
This is the record of the credit you have taken out and your repayment of debts. It typically includes credit from banks, credit card companies, governments etc.
This is a long-term rental agreement which is the same as renting a car for a day or a week. You do not own the car; it remains the property of the finance company at all times. At the end of the agreement, the car goes back to the finance company, just like a rental car.
To default on your agreement means to miss a scheduled payment. Defaulting on your agreement is a breach of your contract and means that the finance company can take action against you if they wish to do so. Most companies will not take action if you are able to make up your arrears.
When taking out car finance you sometimes have the option to put down a lump sum at the start of a contract. A deposit is only usually refundable if the contract cannot go ahead.
The amount of money that your car loses as a result of VAT, age, mileage, wear & tear and other factors. The value of your car after depreciation is called the residual value.
Once all of the debts related to your car have been paid off, it then becomes equity because it is now an asset that you own. Negative equity means your car is worth less than what you owe, so there is a shortfall that needs to be paid off in order to sell or part-exchange the vehicle.
Certain types of finance agreement will have a mileage allowance for the total duration of the term. You may be charged if you exceed this limit.
This is a set interest which remains unchanged throughout the term of the finance agreement.
The percentage you repay the finance company over and above the money you are borrowing. Dealers often refer to the flat rate instead of the APR because it’s often lower, so make sure you are not duped.
The Financial Conduct Authority. An independent body that regulates financial services in the UK, ensuring consumers get a fair and honest deal.
Financial Services Authority. The predecessor of the FCA. Some dealers and finance advisors may still refer to the FSA out of habit, but all written information must be up to date with appropriate references to the FCA.
This stands for the Guaranteed Asset Protection. This is a type of insurance which covers the difference between the original cost of the car and its value when written-off or stolen.
A guarantor is a person that acts as a guarantee of payment, for example a relative may guarantee they will pay your loan should you not be able to but means you can be putting someone you trust in to a sticky situation if you decide not to make any payments.
The Hire Purchase is a popular form of finance agreement. The interest rate is fixed for the full term, and the amount borrowed is spread equally into monthly payments until the Total Amount Payable is repaid.
This is the price added on top of the money you borrow. Interest rates often rely on your credit history. This is different to a fee, which is payable in one lump sum.
This is an increase in prices and fall in purchasing value of money.
It’s possible to apply and sign a finance agreement with two or more people. Together, they are responsible for repaying the loan or finance agreement.
A lease purchase is a contract where you own the vehicle, making several monthly payments at the beginning of the agreement and pay a large payment (balloon) at the end of the deal. The deferred payment will depend on the age and mileage of the car as the contract comes to a close.
Lease purchase is one of the least popular contracts people in the UK go for. However it can be beneficial if you are looking to purchase a luxury car as the value of the vehicle will not depreciate over time. You also can avoid any upfront fee and have ownership over the car after the balloon payment is made.
A contract between a lender and yourself where they come to an agreement regarding the setup of the loan.
The period you have to repay your loan.
The process of preserving the car in the best possible condition. Often lease agreements give a buyer the choice to add servicing costs as another monthly payment. Overall, the total costs of spending will increase but spreads the servicing costs over time and avoids you from making a large sum of payment when your car requires servicing.
You are entitled to a mileage allowance if you have your own vehicle and use it for business journeys. However, you cannot qualify for mileage allowance if you use a company car. The total payment of mileage allowance is determined how old the vehicle is and how many miles they used. Be warned that you will be charged a penalty fee of around 10 – 20 pence per mile that you exceed the mileage allowance.
Negative equity is where the car is worth less than the value you owe to the finance company – also referred to as an “upside down” loan. Despite selling your vehicle, you are unable to pay off the remaining loan amount. For example, if the loan is settled at £10,000 but your car is only worth £7,000, you have £3,000 negative equity.
Negative equity can occur when the car is losing its value at a faster pace than you are able to repay the loan. The finance company may detect a flaw in the car, causing the value to fall rapidly.
The total compulsory cost you pay to use your brand new car on the road. The total price includes the delivery fees, vehicle registration fee, cost for printing your number plates, and road tax. The first year cost of the road tax depends on how much CO2 the new vehicle emits.
The option to purchase fee is the remaining balance you need to pay at the end of the contract to gain full ownership of the vehicle. Once the fee is made, the vehicle ownership transfers from the finance company to the customer.
In addition to the regular monthly payments, you have a choice to make extra payments to the financial plan. The benefits of making an overpayment each month is that the Total Amount Payable is reduced and/or the Term length is shortened and/or your Monthly Payment amounts will decrease.
Please keep in mind that several finance companies may charge a penalty fee if you opt for this payment method.
A personal loan is a type of unsecured loan. With this loan, you are able to borrow money to purchase a car. If you stop making payments in monthly instalments, the finance company cannot take your car. However you may face severe consequences of damaging your credit rating or bankruptcy.
In the UK, The Personal Contract Purchase, also referred as a ‘Personal Contract Plan’, is a very common approach for individuals to finance a new or used car. You repay the depreciation of the car, and will not need to repay the vehicle at full cost. As you come closer to the termination of agreement, you are able to pay the remaining amount or return the vehicle (Option to Purchase Fee) to the finance company. There is also an option of paying the Option to Purchase Fee and sell the vehicle to a new owner.
A personal contract hire is specifically aimed to individuals to lease the vehicle. You are able to rent the vehicle, and will not have ownership of the car and the company will take possession of the vehicle when the agreement has terminated.
When you cannot make regular monthly payments, Payment Protection Insurance can cover this cost. This tends to not be popular as claiming Payment Protection Insurance is very challenging.
If you are deciding to purchase a new car, you can trade in your old car and pay less for your new vehicle.
For all car finance companies, the full breakdown of the cost and other relevant information regarding the vehicle must be included on an official written quotation. Usually the quote is valid for 14 days, but the finance company should clearly tell you long the quote lasts for.
The payment of a balloon amount needs to be paid at the end of the contract for PCP or Lease Purchase. For some of the finance companies, the time you have to pay the remaining cost can be extended. A downside of re-finance is that additional interest and fees are included, making the overall price for vehicle much more expensive than initially.
Residual Value is the predicted price of the used car and its value over time after careful consideration of the age, mileage and condition. When the agreement has ended, the finance company must predict the value of a car and calculate the depreciation of the car over each year.
The Finance & Leasing Association regulates a training and testing programme where they ensure the staff at car dealerships acknowledge regulations set by the Financial Conduct Authority regulations about selling finance.
An agreement where the finance company can take full possession of the vehicle if you do not pay the loan when you stop making payments. In some cases, the finance company may sell the car and still ask for the remaining debt.
Coming to an agreement at the end of the contract where the payment covers all outstanding money.
Term Length describes the payment period you have to pay off the finance agreement. The majority of car finance agreements can last between 1 – 5 years.
The complete cost of the vehicle, including the loan, interest, total credit and other fees you need to repay the lender.
A loan is given to the borrower as their credit is worthy to the lender. The risk of this unsecured loan is lower for you but is a higher risk for the lender. The finance company cannot take your vehicle even after you stop repaying the loan. However they can inflict damage on your credit rating and cause you to go bankrupted. If you have a poor credit score, this option is not the best choice for you.
The variable rate is where the interest rate is not fixed and fluctuates. Thus, your monthly payments of your car may increase or decrease depending on the rates set by the Bank of England.
Considering the ever-increasing levels of pollution currently being experienced in cities all around the world, many people are seeking modern, affordable ways to help the planet out. If we are able to take steps to protect ourselves, whilst also helping safeguard future generations from the devastating effects of environmental degradation, we should certainly grasp that opportunity with both hands, otherwise things are only going to get worse.
Choosing to drive an electric car over a petrol or diesel vehicle is just one of the many ways in which we can make the future more breathable. There are several options to choose from, which means that you will definitely be able to find an electric car to suit your lifestyle and needs. The evolving technology of electric cars means you will have a driving experience like no other.
There are several advantages to purchasing an electric car over a conventional vehicle. Read on to find out just some of the many benefits.
Electric cars are extremely cheap to charge and many new cars offer great incentives for people to get money back from the government for going green. There are also opportunities to save money in other areas, including lower road tax (now called Vehicle Excise Duty) on many electric and plug-in hybrid cars, which helps make the servicing and running costs cheaper. Moreover, those driving into the Capital are exempt from paying the Congestion Charge and many towns and cities across the country offer free parking for anyone driving an electric car. If you are able to get an electric car through car finance, you will even be able to split up the cost of the payment for the car and pay it off over a certain amount of time and save yourself from having to pay a one-off lump sum.
The running costs are cheaper in the long-run too, since electric cars are run entirely on electricity that its owners provide. This means you will never have to buy an ounce of gas ever again! Fuel-based cars can cost an awful lot, particularly as the prices of fuel continue to reach an all-time high. This can save the regular driver thousands each year. Obviously, electricity isn’t free, but taking all costs in to consideration, an electric car is far cheaper to run.
Likewise, maintenance costs are lower with electric vehicles. We all know that our cars need a bit of tender loving care every now and again, and with petrol and diesel engines accumulating quite the bill for engine maintenance over their lifetimes, electric vehicles do work out cheaper. Truthfully, a petrol or diesel engine is a difficult beast, requiring many additional components to operate correctly, such as exhaust systems, starter motors, fuel injection systems, oil, radiators, gears, and so on.
Pure electric cars, on the other hand, have just three main components; the on-board charger, inverter and motor, and fewer moving parts than cars with an internal combustion engine. This means there are less components which will require regular maintenance and servicing, all of which will save you money.
It might not come as a shock to you, but electric cars are significantly better for the environment than conventional petrol or diesel cars. Electric cars have no tailpipe emission or exhaust, meaning they do not produce harmful gases which are, in turn, released into the atmosphere. As such, electric cars can help to improve air quality, particularly in urban areas and at the roadside where air quality is normally worse.
Over their whole lifecycle, electric cars have lower greenhouse gas emissions than regular vehicles. Battery manufacture can be then offset by increased efficiency and emissions savings over the life of the car.
Reduced harmful exhaust emissions also means good news for our health, since an improvement in air quality should lead to fewer health problems and the costs associated with air pollution.
We release a variety of chemicals into the atmosphere when we burn the fossil fuels we use every day. This air is then breathed in, which means it has a direct impact on our health. Breathing polluted air puts you at a higher risk of asthma and other respiratory diseases, whilst living in a polluted area can even put people at risk of cancer. Less pollution equals better health for everyone!
As more and more electric cars find their way onto our roads, we will see the supporting infrastructure around them expand. This can already be evidenced by the fact that there are currently over 4,800 charging locations in the UK, offering nearly 7,500 individual charging points, and these numbers are growing at an ever-increasing rate.
Imagine never having to visit a petrol station again. Instead, envisage simply plugging in your car when you get home, charging it overnight and it being ready to go for your commute in the morning – that’s it. Your car will always be quietly taking care of itself whilst you sit back and relax. Plugging in takes all of about 15 seconds, which means it’s as easy as charging your mobile phone.
Moreover, those with short electric ranges will not require as much electricity to fully charge the batteries, so that will also cost you less, but you may have to charge your car more frequently than other models. The principle is the same in a car with a small petrol tank – it’ll cost less to fill up, but you won’t be able to cover as many miles as a car with a far larger tank.
Enjoy your favourite songs on the radio more than you ever could before, or simply relish in comfort of a noiseless drive, because electric cars are extremely quiet.
If you have been a long-time conventional car driver, your first experience when driving an electric car is almost surreal, since electric engines make almost no noise, which engineers have been perfecting for a long time. The only sound you can hear is probably the muffled hum of tires on road. On the contrary, the noise levels inside a gasoline vehicle can be as high as 75-80 decibels.
Unfortunately, we have been born into a world where the action of one has the potential to affect many, and our mistakes so far have caused environmental pollution which must be quickly addressed. Thankfully, it isn’t too late and many of us are beginning to wake up and admit where we have gone wrong, attempting to reverse some of the damage.
The good news is that every positive action matters – even the smallest amount of effort you put in to create a greener environment can start a healing ripple effect. One of these actions can include making the switch to an electric car in order to cut out the amount of pollution being released into the air around us. Not only does this help the environment and, in turn, our own health, but it also saves you money in the long-run.car finance no deposit might be just the thing you are looking for. Many people are unsure whether no deposit car finance deals exist in the real world, or if there are hidden catches that they might be unaware of. If you like the sound of getting a car on finance without paying a deposit, read on to find out more.
Purchasing a car is a large financial burden, particularly if the vehicle is brand new, which is why many people require some form of loan in order to help offset the costs. However, credit scores for car loans will vary depending upon the provider and their specific rules, with many taking on those with poor or no credit.
We explain the key points you should consider with regard to your credit rating before you begin filling out any car finance applications.
Your credit score, or credit rating, is a number given to you based on your likelihood of paying back the credit you owe. Finance lenders, such as credit card companies, banks and car finance providers will be able to calculate your credit score by looking at your credit history in order to determine how risky you are perceived to be as a borrower. This helps them decide whether to grant a loan to you or not.
Generally, the higher your credit score is, the more likely you are to receive a loan and be accepted for credit, and the better your lending rates will typically be.
Your credit rating is used to determine how safe of a borrower you are perceived to be. This is the loan company’s way of protecting themselves from people who will not be able to make repayments.
When filling out applications for car loans, the lender will be able to see your credit history, which allows them to determine whether you are likely to repay the loan in future based on your past credit behaviour and whether you are good at managing your debts.
Things taken into account include; how often an applicant has applied for credit, whether payments are made on time, and if anything is owed. Points will generally be lost for things like late payments and defaults, while you will look better if you make payments on time, are on the electoral register and have a steady source of income.
Of course, there are many reasons as to why someone might have a poor credit score and many modern lenders will be willing to take into consideration a range of personal factors when deciding whether to offer you a loan.
That being said, people with bad credit ratings may find themselves on the receiving end of a poor loan contract, or one with a particularly high interest rate, while some lenders will simply reject this type of applicant altogether.
The short answer is that no, there isn’t an ‘ideal’ score that you will need to possess in order to get credit. But, it is obviously the case that the lower your credit rating is, the more difficult it will be for you to get approved for a car loan.
In actual fact, what matters most to potential lenders is the contents of your credit report, which means they will dig further than just your overall score (which varies between companies anyway).
Lenders also take into account your personal application details, such as your income, whether you are on the electoral roll, and whether you’ve taken out a loan with them previously. This means that you may be rejected by certain lenders but quickly approved by others.
If your credit score isn’t good at the moment and your need for car finance is not urgent, it is wise to wait until you have steadily improved your score before making an application. Unfortunately, there really is no quick-fix method to improving your score – it simply doesn’t happen overnight.
However, there are several ways in which you can improve your credit score:
CarFinance Plus is able to offer expert advice and tips on how customers can repair or build up their credit scores in order to be accepted for car finance.
Spending time building up your credit rating is a slow process and could take many months (and in some cases, even years), which isn’t always practical, particularly for people who need to get behind the wheel as soon as possible. Thankfully, there are now many finance lenders which are open to offering loans to people with poor credit scores.
CarFinance Plus works with many of the UK’s top lenders and specialises in helping people with poor or no credit get the right car loan deal for their income and budget. We are even able to offer some 0% car finance deals so that borrowers do not need to pay an initial deposit to get behind the wheel.
Once you’ve been approved for car finance, it’s important that you are able to manage your repayments in a responsible manner in order to protect your overall credit score. As such, there are several top tips you should abide by:
In the UK, a whopping 86.5% of new cars are bought on finance each year. But, despite this glaring statistic, many drivers admit to not fully understanding all the facts surrounding cheap car finance.
For many people, it might be their first time acquiring a car loan, which means that understanding the types of car finance, interest rates, terms of repayment and other factors can be somewhat overwhelming.
We answer the common questions asked, so that you are equipped with all the information you need when deciding whether to purchase a new or used car on finance.
In HP agreements, the borrower pays an initial deposit of around 10% (depending on the lender) and then pays a fixed monthly instalment, of which the length and repayments are agreed upon beforehand. Once all of these are paid off, the car legally belongs to you. HP agreements can be finished earlier on if the borrower has the funds to pay off the debt remaining on the vehicle.
With PCP loans, an initial deposit is also paid, followed by fixed monthly instalments. At the end of the PCP agreement, the borrower has several options. Including purchasing the car outright using a balloon payment, returning the vehicle or selling it privately.The final balloon payment will be agreed upon beforehand and is worked out as the estimated value of the car at the end of the loan term, by factoring in depreciation.
A very common misconception surrounding car finance is that the borrower can only take out a loan from the dealers of the vehicle. This often means people are taking out bad loans, which are not always the best choice for them. As such, it’s important to shop around and try to find the best loan deal for you and your personal circumstances.
Searching for the best car finance deals should, however, be carried out with caution. If people make a number of full loan applications from several different lenders within a short space of time, this may trigger alarm bells and could negatively impact credit scores.
Instead, it’s best to only carry out ‘soft searches’ when looking for cheap car finance quotes, saving a full application only for the lender which you have decided is best for you, at which point a credit history check will be carried out.
Two types of credit check exist; ‘soft’ and ‘hard’. A soft search is only a background check and can include a person checking their own credit score, or a pre-approved loan offer. Sort searches do not affect your credit rating.
A hard credit check, on the other hand, will show up in your credit history and can affect your overall score. These will be carried out when full applications are made when applying for loans, so be sure to only make applications with lenders you intend to enter into agreements with.
Many traditional finance lenders or dealers will require written personal information before a deal can come to fruition, which obviously would take some time. However, with the rise of many online car finance providers, the process has become significantly shorter and less complex. As such, online dealers can now find quotes in a matter of minutes, and borrowers can fill out application forms very quickly too.
Another common myth about car finance is that entering into a loan agreement will negatively affect your credit rating. However, the opposite can be the case, especially where a borrower makes their repayments on time, therefore showing lenders that you are a low-risk borrower.
It is, therefore, essential to ensure you only take out a loan which you know you are capable of repaying on time. Keeping your credit score as clean as possible is important for being able to negotiate good loan agreements in the future.
Sometimes, things do not work out as planned and a person’s financial situation can change, which is why Voluntary Termination (VT) may be necessary. This means a person can legally exit their loan agreement earlier on than agreed, but only once 50% of the value of the loan has been paid off.
Whilst each different finance provider will have their own term regarding a VT, in the majority of cases, it should not be an issue, so long as the borrower has been able to keep up with monthly payments and the car is handed back in good condition (if not, extra charges may apply).
In most cases, the borrower won’t have to pay any extra fees and their credit rating should not be negatively affected. However, if a person does invoke their VT right to opt-out early on, this is placed on your file and could mean lenders may refuse to grant you finance deals in the future. An early termination should therefore only be used where absolutely necessary and people are always encouraged to only take out finance deals that they are certain they can pay back.
At CarFinance Plus, we receive applications from all types of people, including those with no credit or bad credit, CCJ’s, defaults or payment arrears. Simply make an enquiry and we will see if we are able to help.
Our job is to match people with the right lender based on their personal circumstances, taking into consideration many factors, such as age, income, employment status, credit history and the loan type. Whatever your situation, do not hesitate to apply!a million cars were purchased on finance between 2016 and 2017, according to industry figures. Nobody has the funds to be able to pay for a car outright anymore and finance can be found in many forms. Manufacturer franchises, car supermarkets, online retailers and even small used car dealers are able to offer some form of car finance. If you are new to car finance, the options available to you might seem overwhelming and you may ask yourself where you should even begin. Our detailed guide on car finance is easy to understand and will teach you everything you need to know about the finance options available to you. Once you are equipped with this information, you should be able to work out which finance deal is the right one for you.
Purchasing a used car is ideal for people who like to snap up a bargain, and finance can be used to help purchase a vehicle in a similar way to new models. However, there are several points to look out for when purchasing a used car from a car dealership or private seller, in order to protect yourself from any extra hassle and unexpected costs down the line.
Our comprehensive guide to buying a used car outlines the vital points you should consider, including any relevant vehicle checks to carry out and the documents to ask for from the seller.
We cannot stress enough the importance of carrying out a vehicle history check on any used car you intend to purchase. This will allow you to see if there are any outstanding issues with the car, including whether it is on record as stolen, has been written-off, or if there is any car finance left on the car.
To carry out the check, you must know the registration number, model, make, MOT test number and V5C vehicle registration certificate. Many companies can provide vehicle history check services at different price ranges, however, the cheapest ones may not give you all the essential information needed.
For a relatively minor fee of £20, you can undergo one, single comprehensive HPI check to protect yourself from receiving any nasty surprises later on. For instance, if a car is found to be stolen, even if the person who has bought it was unaware, it will still be taken off them for investigation.
Purchasing a car which has outstanding finance to pay is also a nightmare, as you may not own the car even once you’ve paid for it and you may also become liable for the former owner’s unsettled debt.
We would always recommend carrying out thorough research to determine the proper market value of the car you want to purchase, so as to avoid overcharging. You can do this by looking at price guides, asking around and comparing the price to other used cars of a similar age, make and model.
Some car dealers or private sellers may not always be completely honest with you about the state of a car they are trying to sell, so it’s important to carry out a comprehensive check of the vehicle before putting any cash down on it, which leads us on to the following few points.
There are many ways you can check the physical attributes of the vehicle you intend to purchase and knowing what to look out for could save yourself a lot of time and money in the long run. Always arrange car viewing on a dry day so you can get a really good look at the car in broad daylight, making it more difficult to disguise any marks or dents.
Don’t be afraid to examine every aspect of the vehicle, such as underneath the car bonnet and under the car for possible signs of accidents or rust. A savvy, smart customer is one who checks the car thoroughly, including:
When you go to check out a vehicle, you are also there to check the legitimacy of the seller too. We recommend going with a set of questions on-hand, showing the seller that you are serious and know what you are talking about.
Request to see the MOT certificates and service history, whilst asking questions about the vehicle and all of its features. If the seller does not seem to know anything about the vehicle, this could be a clear indication that it has been stolen.
It is also extremely important to see the up-to-date V5C registration document, also referred to as the vehicle log book, which details all the previous owners of the car, as well as the current owner. The V5C is a vital piece of paperwork which comes with a car and it details all the important information about the vehicle, which is also registered within the DVLA’s database.When buying a used car privately, be sure to thoroughly check the document in several ways:
The Vehicle Identification Number (VIN) of the car is found in several places, including the bottom of the windscreen, beneath the bonnet and under the carpet on the driver’s side, stamped into the framework. This number must match the VIN that is written in the V5C registration document.
Provided your insurance allows you to drive another person’s car with permission (Driving Other Cars, or DOC cover), there is no harm in asking the seller to take the vehicle for a test drive. This will allow you to gauge whether there is anything wrong with it, such as the steering, gears, clutch and brakes not working well. You should also be on the lookout for any strange sounds coming from the vehicle.
Once you are satisfied that the second-hand car is in good condition, has all the right documentation and is coming from a legitimate seller, then you can determine how you are going to purchase it. If you do not want to make an outright purchase, there are several different finance options you can use to help fund the purchase of a used car. This helps spread the cost out over fixed monthly payments, and many finance providers also lend to people with no credit or poor credit.
The two most common finance options are Hire Purchase Agreements and Personal Contract Purchase, and many dealers will be open to offering these for both new and used vehicles. The terms are a little different for each, but you will have to pay an initial deposit and then a fixed set of monthly instalments with both types.