Whether you are looking for a car finance dictionary, car finance glossary or car finance wiki; you are in the right place. This a-z of car finance breaks down the jargon and gives you a simple explanation of what these phrases mean, use this guide to find out car finance definitions. If you want us to add any phrases let us know!
Car Finance Dictionary
A
Annual Percentage Rate (APR)
APR is the total cost of borrowing expressed annually. It includes interest and any compulsory fees—helpful for comparing deals.
B
Balloon Payment
A large final payment on a PCP agreement if you want to keep the car at the end of the term.
C
Credit Score
Your credit score affects your likelihood of approval and the rates available.
Commission
Finance brokers, like Car Loan First, may receive a commission from lenders. This should be disclosed to you clearly and fairly as per FCA rules.
D
Deposit
An upfront payment reducing the amount you need to borrow. Some finance options offer zero deposit deals.
E
Equity
The difference between your car’s value and what you still owe. Positive equity can help fund your next purchase.
F
Fixed Interest Rate
Ensures consistent monthly payments.
FCA (Financial Conduct Authority)
The FCA regulates financial services in the UK. Using an FCA-authorised car finance broker protects you as a consumer.
Financial Ombudsman
A free, impartial service that resolves disputes between customers and finance providers.
G
Guarantor
A second person who agrees to repay your loan if you default—useful for applicants with poor or no credit.
H
Hire Purchase (HP)
Spread the cost of a car over time. You own the car after the final payment. you can find out more about HP car finance on our dedicated explainer page.
Halves and Thirds Rule
Gives legal protection around repossession and voluntary termination under the Consumer Credit Act.
Hire Agreement
A finance agreement where you use the car while making monthly payments, without initial ownership.
I
IVA (Individual Voluntary Arrangement)
A debt solution which may impact your finance eligibility.
Initial Disclosure Document (IDD)
This explains who you’re dealing with, the services offered, fees, and commission structure. You can read Car Loan First’s Initial Disclosure Document here.
J
Joint Application
Two people apply together, often improving approval odds and finance terms. Some of our lender partners are able to accept joint applications, contact one of our advisers for more information.
K
Key Facts Document
A summary of essential terms like APR, total repayable, fees, and cancellation rights.
KYC (Know Your Customer)
A legal requirement to verify identity, usually requiring proof of address, income, and ID. Nowadays these checks can be done very conveniently for customers using a simple link to your phone which takes only a matter of minutes. At Car Loan First we use leading technology to ensure this is as convenient as possible and takes only a couple of minutes.
L
Loan Term
How long your car finance agreement lasts. Shorter terms = higher payments, but less interest overall.
M
Mileage Limit
Often applies to PCP. If exceeded, you may face extra fees at the end. To learn more about PCP car finance you can check out our deep dive on this topic here.
N
Negative Equity
Occurs when your car is worth less than the amount you owe—making trade-ins or refinancing more difficult.
O
Option to Purchase Fee
A final payment (often small) to take full legal ownership at the end of a PCP or HP deal.
P
Personal Contract Purchase (PCP)
Lower monthly payments with options to buy, return, or part exchange at the end. Check out more information on PCP car finance here.
PCCI (Pre-Contract Credit Information)
A legal document outlining your credit agreement in full before you sign.
PCE (Pre-Contract Explanation)
A clear summary of the key points in your credit agreement.
Q
Quotation Search
A soft credit check that doesn’t affect your score. Used to assess eligibility before making a full application.
R
Refinancing
Replaces your current car loan with a new one—often to reduce payments or switch lenders.
S
Soft Credit Check
A credit check that doesn’t leave a footprint on your credit report. Used during initial assessments.
T
Total Amount Payable
The overall amount you’ll repay—includes interest, fees, and balloon payments if applicable.
U
Used Car Finance
Finance for second-hand vehicles. Widely available, often more affordable than new car finance.
V
Voluntary Termination
Your legal right to end HP or PCP early after repaying at least 50% of the total amount.
Voluntary Surrender
You hand the car back before reaching 50% repayment. You remain liable for any shortfall.
W
Wear and Tear
Damage beyond “fair wear and tear” may result in charges—especially when returning a PCP car.
X
X-Check (Cross Check)
Internal verification process used by lenders to validate documents and application details.
Y
Yearly Mileage
Affects depreciation and finance costs, especially under PCP agreements with mileage caps.
Z
Zero Deposit Finance
Get approved with no upfront payment. Monthly repayments only—ideal if you don’t have savings but meet affordability checks.
Car Finance Dictionary Summary
This car finance dictionary is an open resource, use it to become familiar with all the terms and phrases you will hear when looking for your next car. If you need to speak to anybody or more information about some of the phrases in the car finance glossary please contact our helpful team.
