A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Acceptance fee
An additional charge that is sometimes made by the lender (finance company) and is in addition to the interest.
Accrue
To accumulate interest charges.
Administration fee
An additional charge that is sometimes made by the lender (finance company) and is in addition to the interest.
Add-Ons
Refer to Options.
Adverse
Poor credit history, missed payments and or public data such as defaults and CCJ's.
Agreement
Legal document completed and signed by the lender (or owner) and the borrower (or hirer) following an application to obtain goods on credit or hire.
Amortization
The repayment of a loan by instalments with regular payments to cover the principal and interest.
Amortization Term
The amount of time required to amortize the loan. The amortization term is expressed as a number of months. For example, for a 3-year fixed-rate loan, the amortization term is 36 months.
Amount Financed
The amount of credit provided by a lender.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) is a yearly rate of interest that includes all of the fees and expenses paid to acquire the loan. A term used in the Consumer Credit Act to represent the percentage relationship of the total finance charge to the amount of the loan.
Application
An initial written statement of personal and financial information required for an evaluation of creditworthiness.
Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).
Balance
The difference between the totals of the credit and debit sides of an account or the remaining amount due to be paid on a credit agreement at any particular time.
Balloon Payment
A one-off payment made by the customer at the end of some finance agreements. It has the effect of reducing monthly payments.
Bankrupt
A person, firm, or company that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
Bankruptcy
A proceeding in a court of Law in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
Basic Price
The cost of a vehicle before a franchised dealer adds options. Includes the standard equipment and the manufacturer's warranty.
Basis Point
An interest rate or yield expressed as 1/100 of one percent.
Before-tax income
Income before taxes are deducted.
Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
Black Book
Refer to Book Value.
Book Value
The value of a used vehicle in a specific market area. A recognized wholesale appraisal guidebook provides guidance on the vehicle's value at any given time. Examples of these guidebooks include CAP (Black Book)and Glass's Guide.
Borrower
The individual that obtains credit from a lender with the understanding that it will be repaid, with interest, within a clearly defined schedule.
Breach of Contract
A violation of any legal obligation.
Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buyer
An individual who purchases a vehicle. This individual is primarily liable for repayment of the loan and has ownership rights in the property purchased.
Cancellable Agreement
A type of credit or hire agreement regulated by the Consumer Credit Act that is signed off Trade Premises. This gives the customer the right to cancel (in writing) within a number of days of signing it. The cancellation terms are shown in the agreement.
Capital
An amount borrowed or due to be repaid immediately or by instalments, excluding interest.
Cash Price
The price at which a seller offers to sell the property or service that is the subject of the transaction.
Clear Title
A title that is free of obligation or legal questions as to ownership of the property.
Collateral
An asset (such as a vehicle) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
Collection
The efforts used to bring a delinquent account current and to file the necessary notices to proceed with foreclosure when necessary.
Compliance
A financial measure to dictate if you are acting according to certain accepted standards. Regulatory compliance refers to systems or departments at corporations and public agencies to ensure that personnel are aware of and take steps to comply with relevant laws and regulations.
Comprehensive Insurance
A coverage, which pays for property loss, caused by force other than collision, such as fire, theft, vandalism, flood, hail and glass breakage.
Contract
A legally binding agreement between two or more persons for the purchase of financial products.
Co-Buyer
An individual who purchases a vehicle (property) jointly with a Buyer. This individual is jointly liable for repayment of the loan and has ownership rights in the property purchased. see also Joint Hirer
Co-Owner
A second owner of the auto (property).
Co-Signer
An individual who agrees to pay the amount due (payment) and to perform all the agreements stated on the contract if the buyer fails to meet contractual obligations.
Conditional Sale
A type of purchase plan where title to goods passes from the Finance Company to the customer when certain conditions are met (i.e. Payments made, comprehensive insurance and good condition of the vehicle).
Consumer Credit
Credit offered or extended to a consumer primarily for personal, family or household purposes.
Consumer Credit Act
A law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions. Primarily to protect the consumer.
Contract
A legally binding agreement between two or more persons for the purchase of financial products.
Contract Hire (or Operating Lease)
This is a method of funding the use but not the ownership of a vehicle, the customer (Lessee) is renting the vehicle for a fixed rental from a leasing company (Lessor) for an agreed period.
Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit Bureau
An organization that gathers consumer credit information. There are three major credit bureaus: Callcredit, Experian and Equifax.
Credit Disability Insurance
An insurance policy that provides protection to the borrower in the event the borrower becomes medically disabled and is not capable of making their loan payment. The insurance company will make payments on a monthly basis according to the terms of the policy.
Credit History
A record of an individual's open fully repaid and unpaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Life Insurance
An insurance policy that may be purchased by the borrower to provide protection in the event of death. The insurance company may pay off the account according to the terms of the policy. This protects the borrower's estate from the liability of the debt.
Credit Reference Agency (or Bureau)
An organization that prepares reports used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from participating financial institutions, as well as from other sources.
Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Credit Sale
An agreement for the sale of goods which allows the customer to pay all or part of the cost of the goods in instalments. It differs from Hire Purchase and Conditional Sale in that the title(ownership) passes to the customer at the start of the contract.
Credit Score/rating
A numeric assessment used to evaluate the amount of "risk" involved in a credit transaction. It involves the evaluation of credit quality based on the information provided in the consumer's application, the proposed loan structure and the consumer's credit report.
Creditor
A person or institution who extends credit and to whom the obligation is payable.
Creditworthiness
Determination of a consumer's eligibility to borrow money. This information is based on the number of accounts opened, the types of accounts, payment history and account balances.
Dealer Margin
The amount the makes between what the dealer pays the manufacturer for a vehicle and the selling price.
Dealer Screen Price
The total price of the vehicle as offered for sale.
Debt
An amount owed to another.
Debtor
The customer, company or individual entering into the agreement to borrow money from a lender or a person who has an obligation of paying a debt.
Default
Failure to comply with the terms of a loan agreement. If a borrower defaults on a loan, the lender may seize the asset, liquidate (sell) it, and apply proceeds to the loan balance.
Delinquent
The failure to make a loan payment on time.
Delivery Charge
The price added into the dealer invoice for moving the vehicle from the manufacturer to the dealer.
Deposit
An initial payment of a portion of the capital cost of the vehicle. This usually takes the form of cash / cheque or equity in a part exchange vehicle.
Depreciation
A decline in the value of a vehicle (property) over time.
Distance Selling
The sale of goods or services to consumers via the telephone, fax, mail-order and increasingly by the internet or a digital TV is protected by Distance Selling Regulations. The sale of motor vehicles is covered under the Distance Selling Regulations.
Direct Financing
A loan is originated directly between a lender and a consumer. Compare to Indirect Financing.
Document Fee
An additional charge that is sometimes made by the lender and is in addition to the interest.
Driver and Vehicle Licensing Authority(DVLA)
A government agency that oversees the process of registering, titling and licensing vehicles for use on the public road.
Due Date
The date in a given month that a loan payment is due.
Early Settlement
Payment of the balance owing on a credit agreement, including interest, before the final payment is due. If it is a Regulated agreement under the Consumer Credit Act, there is a legally specified rebate that the customer must be given.
Electronic Funds Transfer (EFT)
A process that allows either the lender or the borrower to transfer funds or payments electronically between respective bank accounts. Also referred to as telegraphic transfer(TT).
End of Agreement / Contract
When all the contracted payments have been made (including any fees) on an agreement. For Hire Purchase and Conditional Sale agreements, this is when title is transferred to the customer.
Endorser
A person who signs ownership interest over to another party.
Equity
The ‘positive’ difference between the value of a vehicle and any
money owed on that vehicle.
Executed Agreement
When a contract (document) containing all the written terms of an
agreement is signed by all the people involved in it.
Extended Warranty
A contract that covers specified breakdowns after a manufacturer's warranty expires. Manufacturers and independent companies sell extended warranties.
Fair Market Value
The amount that a willing buyer would pay at a given point in time for the auto (property) in a realistic transaction.
Finance Charge
The cost of consumer credit expressed as a £ amount.
Finance Company
An institution that finances purchases repayable in instalments.
Finance Contract
A document that details all the terms and conditions of a financial arrangement as well as vehicle and customer details.
Finance Lease
This is a method of funding the use but not the ownership of a vehicle. The customer (Lessee) is renting the vehicle for a fixed rental from a leasing company (Lessor) for an agreed period. In this type of lease, the customer is responsible for the whole cost of the asset to the leasing company and will share in any profit when the asset is sold. The ‘Risk and Reward’ are with the lessee.
Finance & Leasing Association (FLA)
The FLA is the main representative body for the UK motor finance industry and its Lending Code sets out standards of good practice for the finance and leasing industry. Full FLA membership requires compliance to the Lending Code.
Fixed Rate Loan
A loan in which the interest rate remains constant throughout the life of a loan.
Fixed Rate of Interest
A rate of interest which cannot be altered during the term of a financial transaction.
Flat Rate of Interest
A ‘flat’ interest rate is the most common method used to calculate interest charges payable on a finance agreement. It is normally on a per annum basis and the total interest is calculated on the amount of money borrowed and the term of the loan.
Franchised Dealership
An vehicle dealership authorised by a manufacturer to sell the manufacturer's products.
Gross Income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
Guarantee
A form of security used in support of a finance agreement where a third party acts as surety in the transaction between the finance company and customer.
Guaranteed Asset Protection (GAP)
An insurance policy that bridges the gap between the insurance company payout and finance company settlement (or original vehicle cost) in the event of total loss or theft of the vehicle.
Guaranteed Future Value (GFV)
This is set by the manufacturer or finance company and allows the customer to know the least amount the car will be worth at a point in the future and it normally guarantees the balloon payment on a Personal Contract Purchase (PCP). It is normally calculated after taking into consideration the retail price of the vehicle, the length of time the customer wants to keep the vehicle and the mileage they will cover during that time. Not to be confused with Residual Value(RV)which is not guaranteed.
Guarantor
One who agrees to pay the debt of another.
Hire Purchase
A Hire Purchase Agreement is a fixed cost, fixed period loan of money to purchase goods. It is a ‘Tri-Partite’ agreement where a finance company HIRES the vehicle to the customer for an agreed period at an agreed monthly sum; the customer can gain ownership (title) by paying an additional sum called the Option to Purchase Fee or Purchase Fee.
Hirer
The person to whom goods are hired under a consumer hire agreement.
Indirect Financing
A loan that is originated by a dealership and subsequently assigned to a financial institution.
Inspection
The mechanical and physical evaluation of a vehicle.
Instalments
Amounts payable at regular intervals under a credit agreement.
Instalment Plan
A method of buying a vehicle (property) on credit and making payments at regular intervals for a specific period of time.
Insurance
The assumption of risk of another party's financial loss.
Insurance Premium
The payment made to an insurance company to cover the cost of insurance.
Interest
The cost of borrowing money, usually stated in terms of a percentage.
Interest Rate
The interest rate is a part of the annual percentage rate (APR) equation. Interest is the annual rate of return that the lender receives on the Principal of the loan.
Invoice Price
Refer to Dealer Invoice.
Joint-Hirer
An individual who purchases a vehicle (property) jointly with a Hirer. This individual is jointly liable for repayment of the loan and has ownership rights in the property purchased.
Late Fee
A charge assessed by a lender for payments received after a specific due date.
Lease
A contract between a lessor and a lessee for the hire of a specific asset where the title to the goods is retained by the finance company.
Lease Purchase
A Lease Purchase is a purchase agreement (similar to a Hire Purchase or Conditional Sale). The term ‘Lease Purchase’ was introduced into the finance industry to describe a Hire Purchase or Conditional Sale contract with a payment structure similar to a lease. I.e. Instead of a deposit,’ Advance Payments’ may be paid and it is usual to have a balloon payment.
Lender
The individual or organization that lends funds to a borrower with the understanding that those funds will be repaid, with interest, based on a clearly defined schedule. It can be a bank, credit union, or finance broker offering or referring the loan.
Liability
A customer’s obligations under a credit or hire agreement.
Liability Insurance
Protection for the policyholder, up to an agreed amount, for sums payable to another for personal (bodily) injury or property damage.
Loan
Money lent to a consumer to be repaid over a period of time.
Loan Balance
The amount owed on a loan after deducting the amount of payments made.
Loan Contract
The written agreement between a borrower and a lender that identifies the terms of the loan.
Loan Term
This is the length of the loan, usually broken down into months (24, 36, etc.). While it is true that the longer the "Loan Term", the lower the monthly payment; increasing the length of the loan to lower the monthly payment should be done with a great deal of caution as the total amount repaid will be higher due to interest accrued.
Loan-to-Value Ratio (LTV)
A ratio used to determine the amount of money a lender will loan based on the value of the vehicle. It is usually calculated by dividing the loan amount by the Retail Value or Manufacturer's Recommended Retail Price (MRRP).
Manufacturer
The original producer of a vehicle. A few examples include Ford, Honda, BMW, Mercedes etc.
Manufacturer's Recommended Retail Price (MRRP)
The vehicle sale price recommended by the manufacturer.
Maturity Date
The date on which the balance of the loan becomes due and payable.
Monthly Payment
The amount of capital and interest the borrower is obligated to pay each month.
Negative Equity
The ‘negative’ difference between the actual value of a vehicle and money owed on that vehicle.
Non-Cancellable Agreement
A regulated credit or consumer hire agreement that is signed On Trade Premises, where the customer cannot cancel once signed.
Non-Prime Lender
A lending institution that loans money to individuals with a financially challenged credit history. The risk factor on this type of loan is greater, thus resulting in higher interest rates in order to compensate for the high risk factor. Also referred to as Sub-Prime Lender.
Non-Regulated Agreement
A credit or hire agreement that is not governed by the Consumer Credit Act.
Obligation
The legal responsibility of a borrower to repay a loan.
Operating Lease
This is a method of funding the use but not the ownership of a vehicle. The customer (Lessee) is renting the vehicle for a fixed rental from a leasing company (Lessor) for an agreed period. At the end of the contract the vehicle is handed back to the leasing company. An Operating Lease transfers substantially all the Risks and Rewards of ownership to the lessor and is an ‘Off-Balance Sheet’ method of funding.
Option to Purchase Fee
The fee that is only applicable on a Hire Purchase Agreement (usually payable with the final payment) that officially transfers title from the finance company to the customer. The fee is set by the lender (finance company) and will be a minimum of £1.00. There is no maximum limit.
Options
Features that are added to a base model. For vehicles, examples include a sunroof, automatic transmission and satellite navigation. Options are also referred to as add-ons.
Part Exchange
The process when a customer exchanges their car with a motor dealer to form part or all of a deposit towards the price of their next new vehicle.
Part Exchange Allowance
A credit amount given to a customer upon purchase of a new vehicle, in exchange for their old vehicle (property). This credit amount may reduce the cash price of the new purchase. Also referred to as Trade In Allowance.
Payment Holiday
A period during the agreement when the customer does not make any payments.
Payment Protection Insurance (PPI)
Also known as Payment Protection Plan (PPP), is an insurance policy to pay the customers finance in the event of personal circumstances changing. (Death, sickness, accident, redundancy etc.) - see CPI.
Personal Contract Purchase (PCP)
Usually a Hire Purchase or Conditional Sale Agreement which enables the purchase of a vehicle with lower monthly repayments. This is achieved by deferring an amount of the total cost of the vehicle to the end of the contract. This amount is known as the Guaranteed Future Value (GFV)and is guaranteed by the finance company.
Personal Loans
A loan of money to purchase any item the customer wants - including vehicles. The facility is widely offered by Banks, Building Societies, Direct Lenders and Finance Companies.
Primary Period of Hire
The initial period of a lease where the lessor recoups his investment and any interest charges.
Principal
The amount of the vehicle loan without the interest factored in. In other words, the amount you are financing and will be paying interest on.
Principal Balance
The unpaid balance (remainder) of a loan.
Promise to Pay
The agreement by the borrower to repay the current payment amount and date to be paid.
Qualify
The ability to meet a lender's criteria for granting credit.
Quote
A price that represents the cost of a specific item, such as a loan rate, service contract, price of an insurance policy and so on.
Rate
The annual rate of interest on a loan, expressed as a percentage of 100.
Rebate (Early Settlement)
A sum of money returned to a customer following the early payment of a finance agreement. For agreements regulated by the Consumer Credit Act, the minimum amount of rebate is legally specified.
Regulated Agreement
An agreement regulated by the CCA.
Residual Value (RV)
The value of the vehicle at the end of the finance agreement, after a certain time and mileage. It may or may not be guaranteed, depending on the terms of the agreement.
Retail Blue Book Value
The value of a used vehicle in a specific market area. See Book Value.
Retail Price
The amount the buyer pays the seller for a vehicle.
Secured Loan
A loan that is secured by collateral.
Security
Assets or personal property pledged as collateral to secure a loan.
Security Interest
An interest in property that secures performance of a credit obligation.
Service Contract
These are contracts that provide financial coverage to repair or replace any failure or breakdown within the limits of the policy.
Service Contract
A specially tailored service contract can be included in finance packages to cater for service, repair and maintenance costs of a vehicle.
Settlement
The finalising of a financial agreement.
Settlement Penalty
An amount charged to customers who settle an agreement early. Any customer has a statutory right to complete payments under an agreement early, if they so desire. When this happens, the customer is entitled to a rebate of the outstanding interest if the agreement is regulated under the Consumer Credit Act. The Finance Company,
however, is allowed to charge a penalty to compensate for breaking the contract earlier than anticipated - this is currently one month’s penalty interest but it may differ between finance providers and finance agreement.
Simple Interest
A method of calculating interest due by applying a periodic rate to the outstanding balance on a daily basis. As payments are received they are applied first to the accrued interest and then to the principal amount.
Spread Rentals
This refers to a payment profile for a contract. The capital and interest is being paid for ‘spread’ over the whole period (as opposed to having a’ terminal pause’).
Sub-Prime Lender
A lending institution that loans money to individuals with a financially challenged credit history. The risk factor on this type of loan is greater, thus resulting in higher interest rates in order to compensate for the high risk factor. Also referred to as Non-Prime Lender.
Substitution of Collateral
The substitution of a comparably valued vehicle (property).
Supplier
The invoicing dealership.
Term
The period of time which covers the life of the loan. For example, a 3 year fixed loan has a term of 3 years or 36 months.
Termination
The ending of certain types of credit agreement according to the terms and conditions of the individual agreement. Termination Rights Detailed under the Consumer Credit Act as the ‘halves rule’. The legal rights of the customer to end an agreement and return the goods. The CCA allows the consumer to terminate the agreement before the end of the contractual term. Termination is not the same as settlement, because title to the goods does not pass to the customer.
Title
Legal ownership of a vehicle.
Total Amount Payable
The total amount a customer pays for good including all charges and fees.
Total Sales Price
The total price of a credit purchase including any deposit equal to the total of payments plus any deposit. Trade-In
A vehicle offered as part payment in respect of the purchase of another vehicle. See also Part Exchange.
Trade-In Allowance
A credit amount given to a customer upon purchase of a new vehicle, in exchange for their old vehicle (property). This credit amount may reduce the cash price of the new purchase. Also referred to as Part Exchange Allowance(Part Ex).
Tri-partite agreement
An agreement which has three parties involved in the transaction:
Customer; Dealer; Finance Company.
Underwriting
The process of verifying data and approving a loan or insurance policy.
V5 (Registration Certificate)
A registration document provided by the Driver and Vehicle Licensing Agency (DVLA) that provides details on a vehicle, its specification and the registered keeper (name and address).
Value Added Tax (VAT)
Is a general tax on goods and services which was introduced into the UK in 1973 and is policed by Her Majesty’s Revenue & Customs (HMRC - used to be Customs & Excise).
Variable rate of Interest
Rate of Interest charged that changes in response to movements in the base rate of interest used. This Rate of Interest is also known as ‘base rate’ linked, but unlike ‘fixed rate’, it may change during the life of an agreement in line with current market conditions. This means it could go up - costing the customer more; or go down - costing the customer less.
Vehicle Identification Number (VIN)
A unique number that is attached to vehicles in order for them to be identified.
Warranty
A guarantee from the dealer or manufacturer that a vehicle (item) will perform as expected or specified. Warranties usually cover specific mechanical problems for a specific number of miles or amount of time.
Wear & Tear
The deterioration in vehicle condition (and value) due to ordinary and normal use.
