Reference
Car finance glossary
Every UK car finance term you'll meet — in plain English.
- 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.
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