Car finance glossary
Every UK car finance term you'll meet — in plain English.
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- APR
- Balloon payment
- CCJ
- Discretionary Commission Arrangement (DCA)
- Financial Ombudsman Service
- Guaranteed Future Value (GFV)
- Hard search
- Hire Purchase (HP)
- LTV
- Negative equity
- Personal Contract Purchase (PCP)
- Representative APR
- Riba
- Soft search
- Voluntary Termination (VT)
- APR
- Annual Percentage Rate — the yearly cost of borrowing including interest and standard fees, used to compare finance offers on a like-for-like basis.
- Balloon payment
- The optional final lump sum on a PCP agreement. Pay it to own the car; don't pay it and hand the car back.
- CCJ
- County Court Judgment — a court ruling that you owe a debt. Sits on your credit file for six years unless settled within a month.
- Discretionary Commission Arrangement (DCA)
- A now-banned commission model where brokers could raise a customer's interest rate to earn more commission. Central to the FCA motor finance redress scheme.
- Financial Ombudsman Service
- The free, independent dispute-resolution service for regulated financial products in the UK. You don't need a claims company to use it.
- Guaranteed Future Value (GFV)
- The minimum value the lender guarantees your car will be worth at the end of a PCP agreement, based on agreed mileage and condition.
- Hard search
- A credit check recorded on your file that other lenders can see. Multiple hard searches in a short window can lower your score.
- Hire Purchase (HP)
- A car finance product where you pay a fixed monthly amount and own the car outright at the end of the term.
- LTV
- Loan-to-Value — the finance amount as a percentage of the car's price. Lenders cap LTV based on the car's age and your credit profile.
- Negative equity
- When the amount you still owe on a car finance agreement is higher than the car is currently worth.
- Personal Contract Purchase (PCP)
- A car finance product with lower monthly payments and a large optional final payment (the balloon) if you want to keep the car.
- Representative APR
- The APR at least 51% of accepted customers are offered. Yours can be higher depending on the lender's assessment of your file.
- Riba
- Interest, forbidden under Islamic finance principles. Sharia-compliant car finance products are structured to avoid it.
- Soft search
- A credit check that doesn't leave a visible footprint on your credit file for other lenders to see.
- Voluntary Termination (VT)
- A legal right under the Consumer Credit Act to hand back a finance car once you've paid at least 50% of the total amount payable.
In short
Car finance paperwork uses a small set of terms that decide what you actually pay: APR, balloon payment, GFMV, part-exchange equity, excess mileage, voluntary termination and settlement figure. Understanding these seven is enough to read any UK agreement and compare two quotes properly.
- APR
- Total yearly cost of borrowing
- Balloon / GFMV
- Final PCP payment to own the car
- VT
- Right to end after paying 50%
- Settlement
- Amount to clear the agreement early
The terms that change what you pay
| Term | What it means | Why it matters |
|---|---|---|
| APR | Annual percentage rate — interest plus compulsory fees | The only fair way to compare two quotes |
| Balloon payment | The large optional final payment on a PCP | Decides whether you own the car at the end |
| GFMV | Guaranteed future minimum value set by the lender | Protects you if the car is worth less than expected |
| Excess mileage | Pence-per-mile charge for exceeding the agreed limit | The most common unexpected end-of-term bill |
| Equity | Value of your car above what you still owe | Can become the deposit on your next agreement |
| Voluntary termination | Statutory right to end an agreement after paying half | A safety valve if your circumstances change |
| Settlement figure | Amount needed to clear the agreement today | What you need before selling or refinancing |
How to read a finance quote
- Find the APR, not the flat rate — a flat rate always looks lower than it is.
- Check the total amount payable, which includes every payment and fee across the term.
- Check the term length; a longer term lowers the monthly figure and raises the total.
- On PCP, find the balloon and the mileage limit before comparing anything.
- Look for fees: arrangement fees and option-to-purchase fees belong in the comparison.
Common mistakes to avoid
Comparing two quotes on the monthly payment alone.
Compare APR and total amount payable over the same term. A lower monthly payment on a longer term usually costs more overall.
Assuming voluntary termination is free at any point.
You must have paid at least half the total amount payable, and the car must be in fair condition. Check your figures before relying on it.
Sources and review
Last reviewed 5 August 2026 by the WeCarFinance editorial team. Figures on this page are illustrative and are not a personalised quote.
Frequently asked
What does APR mean on car finance?
APR is the annual percentage rate — the total yearly cost of borrowing including interest and any compulsory fees, expressed as a percentage. It is the standard measure that lets you compare two finance offers fairly.
What is a balloon payment?
It is the large optional final payment on a PCP agreement, set at the start as the car's guaranteed future minimum value. Pay it and you own the car; decline it and you hand the car back or part-exchange it.
What is voluntary termination?
Under the Consumer Credit Act you can end a regulated HP or PCP agreement once you have paid at least half of the total amount payable, returning the car in fair condition. It is a statutory right, not a lender favour.
What is a settlement figure?
The amount you would need to pay to clear your finance agreement today, including any interest rebate. Request it in writing from your lender before you sell, part-exchange or refinance the car.
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