At Zuto we try and make car finance as simple as possible, and we'll always explain things to you clearly without using jargon. However, your contract will have specific finance terms in it and there will be times when we have to use these terms as well. To help you we've put together a glossary of all the terms you might find in your contract and around our website, with simple definitions.
This is a fee sometimes charged by lenders at the start of the finance agreement to cover their administrative costs.
Approved in Principle
This means we’ve accepted you for finance but at the point when you’re ready to go ahead and purchase your chosen car, we just have to dot the ‘i’s and cross the ‘t’s, to fully secure your finance.
APR stands for Annual Percentage Rate. It describes the true cost of borrowing money over the course of a year. It includes the interest you'll pay but also any other fees. It's calculated as a percentage of your loan or finance.
Assignment is when property is transferred from one person to another. So when you buy a car for cash, it is assigned from the seller to you. If you are buying the vehicle using finance it is assigned to you by the lender once all the payments due under the agreement are completed.
A broker is a middle man between you and a lender, who searches for products on your behalf and sets up the contract.
Consumer credit act
This is legislation which requires any individual or company who arranges or offers loans or other consumer credit products to be regulated by the Financial Conduct Authority (“FCA”). If an individual or company is not authorised by the FCCA they cannot legally arrange consumer finance or lend money to you.
Consumer credit licence
If a firm wants to carry out Consumer Credit Activities, it must be authorised by the Financial Conduct Authority (“FCA”). Authorisation allows companies to offer you credit, loans or products on hire purchase. Any company who offers you car finance, or a dealership offering a finance package, must be authorised by the FCA.
Cost of credit
This is how much the credit costs on top of the amount you borrowed. It is the total cost of interest and any fees charged over the term of the loan or finance agreement.
County court judgement
A CCJ is a type of Court Order that might be registered against you if you fail to repay money you owe. It sets out how much is owed, how the money should be repaid and the payment deadline.
This is the agreement between you and the company who is lending you the money.
A company who acts a middle party between you and a lender. They find you a loan or finance and arrange it for you.
Credit referencing agency
This is a company who gathers all the information about your credit history. The role of a credit reference agency is to make it possible for lenders to quickly make fair, consistent, responsible and profitable lending decisions.
This is a score given to you based on your history of paying back previous and existing debts and is an assessment of how likely you are to repay debts.
When you apply for credit the finance broker or lender will do a search of the information held by the Credit Reference Agencies to view your credit history and assess the likelihood of you repaying the debt.
This is the company who provides the finance to you.
A person or company who owes money to someone else.
If you miss a payment, the lender may charge default interest. Default interest is charged on the amount of arrears until you make up your payments.
A default notice is a formal letter, sent by a lender (“creditor”), telling you how much you need to pay to bring your account up to date. Your creditor will usually send you a default notice when you’ve missed 3 to 6 payments. You’ll be given at least 14 days to pay the amount stated on the notice.
If you miss a payment, the default sum is any amount you must pay to the lender, not including the interest for failing to make payments when they are due.
This is a cash amount that you can put down on your car. This will be deducted from the amount that you borrow to pay for the vehicle.
As your car ages it loses value, depreciation is the difference between what you paid for it and what it is now worth.
This is a fee sometimes charged by a lender to cover the costs of drawing up agreements and documents.
If you have paid off all debts associated with your vehicle then it becomes your equity, because it is an asset which you now own.
Financial conduct authority
The FCA is a regulatory body which regulates the providers of all financial services in the UK.
Financial services authority
The FSA used to regulate all financial services companies. This is now done by the Financial Conduct Authority.
This is when the interest rate charged on your loan or finance is set in advance and will stay the same throughout the term of the agreement.
Flat rate interest is the percentage of interest charged on the initial loan amount each and every year the loan is in place.
This is a term for finance arranged by a dealership, which you sign for at the dealership.
In most cases the value of your car depreciates after you buy it. If your vehicle is written off or stolen, you will still have to pay the remaining amount payable on the loan or finance. GAP insurance covers the different between this amount and the value of your car.
A guarantor co-signs a loan or finance agreement to say that if the primary borrower cannot keep up the repayments they will repay it. It is mostly used for younger borrowers with no credit history.
Hire purchase agreement
This is a type of finance which allows you to buy goods, like a car. You hire the vehicle from the company lending you money, and make monthly repayments. Once the finance is paid in full you become the owner of the vehicle.
This is a check carried out on a used car. It looks at its history to see if it has ever been written off or stolen, or if there is outstanding finance on it.
When you borrow money from a bank or finance company the lender charges you interest. It is charged on top of the amount you borrowed, and is expressed as a percentage.
This is a firm or person (such as a broker or consultant) who acts as a mediator or a link between the person searching for finance.
It is possible for two or more people to apply for a loan or finance together. You can add a second borrower to your application so that you are both responsible for repaying the loan or finance agreement.
Mechanical breakdown insurance
This is a type of insurance which protects you against unexpected repair costs, for example if your vehicle breaks down.
Motoring recovery organisation
This is a company who offers cover in case you break down while on the road or, dependent on the cover, at your home. They come and repair your vehicle or offer you assistance.
This is when property which you have purchased with a loan or finance (like a car) loses value and is worth less than the amount you still owe to the lender.
Office of fair trading
The OFT were, up until 1 April 2014, responsible for issuing licences to companies involved in Consumer Credit activities. This is now the responsibility of the Financial Conduct Authority. However, the OFT still protects the interests of customers to make sure you get a fair deal.
Option to purchase fee
On some car finance products there is an option to buy your vehicle at the end of the finance agreement for a small fee, payable to the lender.
This is an agreement worked out between you and a car dealership, in which they take your old car in exchange for a reduction in price on a new vehicle.
Quotation search (official name for a soft search)
A quotation search is a type of credit search which does not leave a trace on your credit file which is visible to other lenders. It is used by lenders and brokers to get an indication of whether they are likely to be able to offer you credit.
This is a term for compensating or putting right a situation. In car finance, if you have not kept up your payments then the lender might seek to rectify the situation by repossessing the car or taking action against you to collect the debt.
When you buy a vehicle using finance it is the property of the lender until you have made all the required repayments. If you fail to repay the finance the lender can take the car away from you. However, before a lender can take any further action, you must be served with a Default Notice. Once the Default Notice has been served, the lender can then apply to the court for a repossession order. If you have paid less than one third of the value you borrowed the lender can repossess your goods without a court order.
In the UK, most advertisements must contain a representative APR, in order to be transparent. If you see an advertisement with a 'Representative APR' this means that the majority of customers (i.e. at least 51%) who respond to the advert will receive this APR rate, but some may be different, depending on their credit rating and individual circumstances.
This is the value of your car at the end of your loan or finance agreement.
This stands for Standard European Consumer Credit Information. The information in the SECCI is there to let you compare one finance product against another. The SECCI includes information on the key features of your credit, what type of credit you have and how much, the duration of your credit agreement, your repayments, the costs associated with borrowing, and different rates of interest.
This is the same as a joint applicant. You can apply for a loan with another person so that you share responsibility for repaying it.
A secured loan is a credit agreement that is backed using the equity in an asset owned by the borrower. Car finance is secured on the value of the car, and if you do not keep up repayments then the lender might be able to take the car from you.
A soft search is a search obtained from a credit reference agency by a finance company that does not leave a visible trace on your credit profile. It might not be as comprehensive as a hard search but gives the finance company an indication of your credit rating so they can assess whether they might be able to arrange finance for you.
This is the total amount you will repay to the lender. It includes the original loan amount and the total cost of credit, including the interest and any fees charged.
This is how much a car is worth within the car trade. It is usually less than the amount that the vehicle would be sold for to a customer.
This is a professional market based estimate of what your car is worth at this point in time. It will be used in various situations, for example if you claim insurance.
If your loan or finance agreement is arranged with a variable rate of interest, the rate will change in line with the rate that the loan or finance agreement is based on. This could be, for example, the Bank of England base rate. This is also known as a floating interest rate.
When you buy a product, the seller will usually offer a warranty. This is a guarantee that if something goes wrong with the product in a set time period the seller will fix the problem.