Auto Trader

Compare car loans now.

AER
Annual Equivalent Rate - the recommended way to compare savings products and current accounts. AER is how they calculate the interest paid to you. It shows how much interest you are earning on your cash if it was paid once a year and built up annually.

APR
Annual Percentage Rate - yearly rate of interest you pay on debt that often includes fees and costs. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average interest rate built up over the whole term of the loan, so borrowers can compare loans. For example in mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing.

Authorised overdraft
This is the agreed limit to which a person can exceed the balance of their account.

Credit
Borrowing money and promising to return it at an unspecified later date, usually with some form of extra charge (interest) on top of the initial sum.

Creditor
The person or organisation you owe money to.

Credit cards
There are more credit cards in the UK than people, so you’ve probably got one! See credit. By paying for things on a credit card you are borrowing money and promising to pay it back with interest. The sooner you repay it the less interest you’ll incur. Credit cards come with a mandatory interest free period of around 50 days.

Credit sale agreement
This means you’ve bought goods by financing the deal with a loan, which is repayable over a fixed period of time. More often than not it’s a form of in-store finance. Washing machines and TVs are often sold like this. The retailer will arrange the deal for you with a partner finance company. You own the goods straight away, meaning they can’t be taken away from you if you fall behind.

Credit scoring
The scoring system used by lenders to work out whether you represent a risk for them to lend you money. Usually your credit score will take into account whether you pay your bills on time, the number and type of accounts you have, county court judgments and any outstanding debt.

Conditional sale agreement
Another name for a Hire Purchase Agreement.

Debtor
You - if you’ve got a credit card, loan or mortgage. In short, it means you owe money to someone.

Default
If you ‘default’ on a loan or debt, you are unable to pay your debt repayments as agreed. This can often lead to cash penalties.

Depreciation
The dictionary will tell you it’s the decline in the value of a “capital asset”. In reality it’s the cost of owning and using something – for example, a car’s value will decrease the longer you own it and use it.

Direct debits
A regular payment (often a bill or membership fee) made from a bank or building society account to an organisation - but only with the agreement of the account holder.

Fixed interest rates
A deal whereby you agree to pay an agreed rate of interest for a limited period only. Most commonly used with mortgages, homeowners can get peace of mind knowing what their repayments will be regardless of what the Bank of England’s base rate is. Bear in mind when the deal expires you’ll often default to a higher variable rate.

GFV
Guaranteed Final Value – also called "balloon payment" – it’s the final lump sum you’ll pay for your car based on its predicted depreciation if you’re buying through a PCP.

HP
Hire Purchase – another way to buy a car, often used to buy white goods like fridges and freezers. You agree to pay in installments, but you only own whatever you’re buying once the final installment has been paid. Until then, technically, the company you bought it from owns it.

Hire agreement
A written record of hire terms. Under the Consumer Credit Act all regulated hire agreements must be in writing – and they must give specific information in a specific way. Don’t settle for anything less than a formal hire agreement when you’re hiring a car.

In-store finance
These deals can help you to pay for expensive purchases like furniture or large electrical goods over a set period of time. The store will often offer zero per cent interest for a fixed period and in some cases you can defer beginning to pay back the money for up to a year.

Interest
There are two broad meanings of ‘interest’ in finance:
1. A charge on the repayment of borrowed money (credit, a loan, etc.), often expressed as a percentage of the total amount you borrow.
2. A return on an investment – for example, banks pay you interest on your savings.

Loan
Borrowing money, normally with pre-arranged terms of repayment, for a limited time.

Loan Sharks
One to avoid. Loan sharks offer to lend you money at your door, but charge excessive rates of interest. They’re completely unregulated and there's the potential for things to get nasty if you don’t pay your debt.

MGFV
Minimum Guaranteed Final Value – The MGFV is what your car is worth when a PCP contract ends, as long you haven’t exceeded any set mileage limits. If all’s well that’s how much you’ll pay to buy the car at the end of the contract.

PCH
Personal Contract Hire – a way to hire a car for a lengthy period of time at a fixed cost. The ‘personal’ bit just means private individuals can sign up as well as companies. You agree a monthly rental cost with various terms and conditions, such as total miles travelled, car maintenance and servicing.

PCP
Personal Contract Purchase – the process where a vehicle is leased for a set period at a fixed monthly costs, then at the end of the contract you have the option to buy it outright or return it with nothing further to pay.

PPI
Payment Protection Insurance – insurance that pays out if you can no longer make payments on loans, mortgages and credit cards because you cannot work, e.g. if you lose your job through no fault of your own, or you fall ill. Can be expensive and there is some criticism of it.

Secured loan
Borrowing money and guaranteeing to repay it all with interest by offering an asset (usually your home) against the loan. If you don’t repay the money, you could have your home repossessed. You can normally borrow much more with a secured loan than with an unsecured loan.

Standing order
Another way to meet regular payments. You arrange for your bank to send a fixed amount from your bank account to another bank account by electronic transfer. Commonly used for paying rent or repaying a loan.

Store cards
A type of credit card only usable in certain shops. They often come with a discount or incentive to shoppers to use them in-store. But beware - they often come with very high interest rates.

Sub prime lending
People who don’t fall into normal categories for a lender to calculate the cost of a loan are often called 'sub prime'. You might be unemployed, self-employed or have a low credit rating after having failed to pay bills or repay debt in the past.

Unauthorised overdraft
A negative balance without the permission of your bank. If you exceed your balance by too much, you’ll be charged a fee.

Unsecured loan
Borrowing money - but without any form of guarantee against repaying it. Normally the amount you can borrow is lower than with secured loans as a result.

Variable interest rates
Interest rates go up or down depending on the Bank of England's decisions. They decide whether we should be paying more or less to borrow money and lenders raise or lower their rates accordingly. If you’ve got a mortgage, a variable rate mortgage will track the Bank of England base rate and your repayments will go up or down in tandem.

Compare car loans now.

External links

moneyexpert.com