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Car Finance Glossary

Financing a Car? This helpful car finance glossary will help make understanding the process easier.​​

When you are looking to finance a car, we know some of the terminology can be a bit confusing or hard to understand. Our glossary is here to help, whether you’re completely new to car finance or just want to refresh your knowledge.


Acceptance fee

This fee usually covers the lender's admin fees. This acceptance fee can sometimes be included within the monthly payments for the car or taken before the agreement begins. Some finance lenders don't charge a fee at all.

APR – Annual Percentage Rate

Annual percentage rate also referred to as APR, is the percentage cost of borrowing money for car finance over a year. The APR figure affects how much money you will pay back on top of the loan amount.


Balloon payment

A balloon payment is only apparent in a PCP finance deal. This is a one off sum of money paid at the end of the finance agreement which means you will buy the car outright.

Battery lease

This is a scheme that allows you to rent the battery of a new electric car from the manufacturer.


Swansway Motor Group are a credit broker which means we work with a number of carefully selected credit providers who may be able to offer you finance for your purchase.


Car finance

Car finance is an agreement that allows you to spread the cost of purchasing a car over a period of time. There are different types of car finance that give you the option to borrow the money from a lender to buy your next new or used car, or lease it.The types of car finance are Hire Purchase (HP), Personal Contract Purchase (PCP) and Lease Agreement.

Car lease

A car lease means you pay to hire the car and but then hand the vehicle back at the end of your agreed term. A lease gives you no option to purchase the car.

Car loan

A Vehicle loan is a financial agreement which is secured against the vehicle you want to buy.

You loan a sum of money in order to have the car straight away and then you pay the loan off in monthly instalments. A car loan is also known as financing a car.CCJ – County Court Judgement

CCJ – County Court Judgement

A County Court Judgement is a court order. A CCJ will be

registered against you if you have failed to pay back an outstanding sum of

money to a lender. This order will

appear on your credit history for six years and can make getting approved for

car finance more difficult.

Credit lender

A credit lender is an organisation that can provide you with a loan. Swansway Motor Group have carefully selected finance lenders to partner with to provide you with car finance; One of which is Black Horse who are one of the UK's leading providers of car finance.

Credit score

Your credit score is essentially your financial footprint. It looks at your financial history, to help lenders assess how “safe” you are going to be to lend money to. Your credit score is influenced by a number of different factors including bill repayments, credit searches, and vote history. The higher the score, the more likely you are be able to take out a loan or finance.



A deposit is a sum of money paid upfront before you start your financial agreement.

The amount of your deposit will also determine how high your monthly repayments are.

The higher the deposit, typically the lower the repayments are during your agreement. However there are options that allow you to take out car finance with no deposit.


Depreciation refers to the decrease in the value of your vehicle over time.

Most cars depreciate in value over time due to a variety of reasons such as age, demand, damage or increased mileage.



Equity is the difference between the outstanding debt owed to the lender and the resale value of the car.

If you’re in positive equity, the value of the car is more than what you owe. However, if you’re in negative equity it means that the money you owe is more than what the resale value of the car is.



The FCA refers to the Financial Conduct Authority. They are

the financial regulator in the UK. Swansway Motor Group is a credit broker, not

a lender, and is authorised and regulated by the Financial Conduct Authority.



Being a guarantor involves helping someone else get credit,such as a loan or mortgage. Acting as a guarantor, you “guarantee” someone else's loan or mortgage by promising to repay the debt if they can't afford to.

It's wise to only agree to being a guarantor for someone you know well.


Hard credit check

A hard credit check occurs when a company, or lender, carries out a detailed search of your credit history. It will appear on your credit report and reduce your credit score slightly.

HP – Hire Purchase

HP finance is a type of car finance that enables you to hire the car while paying agreed monthly instalments. These repayments cover the cost of the car, plus interest. You do not own the vehicle until the last payment is made.


Joint application

A joint application for car finance is made by two people who agree to share the responsibility of a finance agreement. Responsibility to pay is on both parties but only one direct debit from one account would come out. A joint application combines the two people’s credit scores, income and expenditure.


Negative equity

Negative equity is when the amount of money owed to the creditors is greater than the resale value of the car. If you choose to settle your finance agreement early, you’ll need to pay the difference between your car’s resale value and the money you owe.


PA – Per Annum

Per Annum means per year. You will often see this on your car finance representative example next to mileage or APR.

PCP – Personal Contract Purchase

PCP finance is similar to hire purchase (HP) but instead of your payments being based on the car’s total value, you pay off its depreciation instead (the difference between what the car is worth now and at the end of the contract). At the end of the agreement you can then choose to either return the car, pay the resale value and keep the vehicle or use the resale value towards buying a new car.

Personal loan

If you never want to own the car, and you know this from the beginning, then you might want to consider personal contract hire (Personal Lease) instead of the other finance options such as PCP as this can work out as a cheaper option.


Rate of interest

Rate of interest or interest rate is the amount a lender charges you for taking out a loan. It is displayed as a percentage of the total loan amount.

Representative APR

APR stands for annual percentage rate and is the official rate used to explain the cost of borrowing. When you see representative APR being advertised, it means that at least 51% of customers receive a rate that is the same as, or lower than, the representative APR.

Representative example

A representative example is used by finance companies to give you an idea on how much the finance will cost. The representative example is usually displayed in a table and covers all of the figures you need to know if you took out the finance agreement. At Swansway Motor Group our representative example is as follows: HP: Payable by 48 payments of £244.83. Payments are based on a duration of agreement of 48 months, a Cash Price OTR of £10,647.00 with a deposit of £1,064.70 leaving an amount of credit of £9,582.30. The agreement is calculated using a fixed rate of interest of 10.35% per year resulting in Representative 10.9% APR and a total amount payable of £12,816.54. Included in the payments shown is an option to purchase fee of £10.00.


Soft credit check

A soft credit check is when a company or lender, carries out a search of your credit history. Different to a hard credit check, this won’t affect your credit score however you will be able to see it in your credit report.



A warranty is a written guarantee promising to repair or replace parts or the vehicle if necessary, within a specified period of time. Your contract will outline what warranty your vehicle comes with and how long it lasts.