Car Finance Jargon Explained
Making the choice to purchase a car using car finance can be a difficult task. Does the car finance jargon put you off buying a new car on finance? We have put together a list of commonly used terms that you will come across when looking to purchase a new car on finance.
Car loan - This is a short-term personal loan taken specifically to buy a car. It works in a similar fashion to standard personal loans, with repayments subject to interest over a fixed number of years.
Fixed repayments - This is a regular fixed monthly repayment amount payable for the duration of your loan.
Fixed interest rate loans - These are fixed and can't be changed by the lender or the customer for the term agreed. Even if the Bank of England change the base rate, your loan rate will remain unchanged, giving you added peace of mind.
CCJ - This stands for County Court Judgements. These are usually issued if you have defaulted on payments of previous debt. Having a CCJ will usually affect your credit score and ability to borrow money in the future.
Credit reference agencies and your credit rating - When borrowing money you agree that the lender can check your credit rating. Your credit history will be held by a credit reference agency such as Experian or Equifax. You can access your credit history by visiting a credit reference agency's website.
Debt consolidation - If you have outstanding debt spread across a number of other loans, credit cards or store cards, you can combine these into one loan with one fixed payment. This is called 'debt consolidation'.
Individual voluntary arrangement (England) - An individual voluntary arrangement (IVA) is a formal arrangement to pay an agreed amount off your debts over a shorter period. Any debt left at the end of the IVA is written off. IVAs can be set up in a number of different ways, either as a monthly instalment plan over a fixed term (normally five years), or a short term arrangement if you have a lump sum to offer. Some IVAs are a mixture of both. An IVA can be a useful alternative to bankruptcy if you are worried about possible risks to your job or home.
Joint and several liability - If you owe a debt in joint names with someone else, such as a partner, you are both individually liable for the full balance. This is known as joint and several liability. This means that if the other party declared themselves bankrupt, or simply disappeared, you could be pursued for the full amount.
Representative APR - This stands for Annual Percentage Rate and is used on lending such as credit cards, loans and mortgages. The purpose of an APR is to show the total cost of borrowing over the period of an average year so, as well as interest, the figure includes upfront fees and charges. This makes it easier to compare deals like for like.
Settlement figure - You may repay all or part of your loan early at any time. If you repay part of your loan early your monthly repayments will be reduced but the duration of the loan period remain the same. If you settle the loan early in full, you may have to pay interest on the amount repaid or the amount repaid or the amount of interest that may be payable depending on the length of your loan.
Term - This is the period of time over which the loan has been taken
Credit limit - Your "credit limit" is the maximum amount the credit company will lend you at any time. You have to be 18 or over to apply for a credit card. It is important to stay within the credit limit you have been set, otherwise you may incur charges, and increased interest rates.
Credit report - The information stored about you with a credit reference agency. It will include electoral information for your address, how you have handled credit in the last six years and a record of credit checks made about you with that agency.
Direct debit - An arrangement where the bank releases money from your account to pay bills automatically. The organisation you are paying can change the amount of a direct debit, but you are told in advance how much it will be. If you set up a direct debit to pay household bills you usually receive a discount, and it means that you don't have to worry about sending off a cheque each month.
Interest - A proportion (or percentage) of money on top of an original amount. If you save money, you can often receive interest from the bank on the money you save. If you borrow money, you often have to pay interest on the money you've borrowed.
Interest rate - The percentage that is paid in interest on savings or loans. A savings account that was offering 8% interest would give you a better return (more money) than one that was offering 5%. Similarly borrowing money at 22% would cost more than borrowing at 18%.
Net Pay - The pay you actually get after tax, national insurance and other deductions have been taken off. Also known as "take home pay