GuideUpdated 7 July 2026
How to use this glossary
Terms are listed alphabetically below. Where a term links closely to another (for example HP and conditional sale, or GMFV and balloon payment), we cross-reference it so you can follow the thread. Definitions describe how products generally work in the UK market; your own agreement, and the way a particular lender applies these terms, may differ. Always read the specific documents you are given and ask the lender or broker to explain anything that is unclear before you sign.
A
Additional payment (overpayment): Paying more than your scheduled monthly amount, or a lump sum, to clear the balance faster. Some agreements allow this freely; others may apply an interest adjustment, so check the terms first. Affordability check: The lender's assessment of whether you can comfortably meet the repayments, based on your income and outgoings. It sits alongside the credit check and is a regulatory requirement, not just a formality. Annual mileage: The number of miles you expect to drive each year. It matters on products like PCP, where the final value assumes a mileage limit; going over it can lead to an excess-mileage charge. APR (Annual Percentage Rate): The yearly cost of borrowing shown as a percentage. It includes the interest plus most compulsory fees, so it is the fairest single figure for comparing finance deals. The rate you are offered depends on the lender's assessment of your application, so it can vary from person to person. Arrears: Payments you have missed and now owe. Falling into arrears can harm your credit file and, on secured products, put the car at risk, so contact the lender early if you are struggling.
B
Balloon payment: A large, optional final payment on a PCP agreement that you pay if you want to keep the car. It is set at the start as the GMFV (see G). Because you defer part of the car's value to the end, monthly payments are lower, but the total cost of owning the car outright can be higher. Broker: A firm that helps match you to lenders rather than lending the money itself. Trusted Car Finance is a credit broker, not a lender. A broker may receive a commission from the lender — this should be disclosed to you.
C
CCJ (County Court Judgment): A court order confirming you owe a debt you have not repaid. It stays on your credit file for six years and can affect finance applications, though some lenders still consider applicants with a CCJ depending on the wider picture. Acceptance is never certain. Conditional sale: A finance product very similar to HP: you pay in instalments and own the car once the last payment is made. The main practical difference is that ownership transfers automatically at the end rather than via an option-to-purchase fee. Credit check (search): A look at your credit file by a lender or broker. A soft search has no initial impact on your credit score and is used to check eligibility; a hard search is recorded and visible to other lenders, and is usually run only later, with your consent. Credit file / credit report: The record credit reference agencies hold on how you have managed borrowing. Lenders use it to help decide whether to lend and on what terms. Credit score: A number some agencies calculate to summarise your credit file. Lenders use their own criteria too, so a single score does not decide the outcome on its own.
D
Default: A formal notice that you have broken the terms of your agreement, usually by missing payments. A default is recorded on your credit file for six years and can make future borrowing harder. Deposit: The money you put down at the start, either as cash or the value of a part-exchange. A larger deposit reduces the amount you borrow and can sometimes improve the terms offered, though some agreements allow little or no deposit. Depreciation: The fall in a car's value over time. It underpins how PCP is priced, because the balloon payment reflects what the car is expected to be worth at the end of the term.
E
Early settlement: Paying off your finance before the end of the term. You are entitled to ask the lender for a settlement figure. Depending on the agreement there may be an interest adjustment, so request the exact figure before you decide. Eligibility: Whether you meet a lender's criteria to be considered for finance — typically including being a UK resident, aged 18 or over, holding a valid licence and being able to afford the repayments. Meeting the basics does not guarantee acceptance; the lender assesses each application individually. Excess mileage charge: A per-mile fee on some PCP agreements if you return the car having driven more than the agreed mileage. Estimate your mileage realistically at the outset to avoid a surprise bill.
F
Fixed rate: An interest rate that stays the same for the whole agreement, so your monthly payment does not change. Most car finance in the UK is on a fixed rate. Fixed sum loan: Borrowing a set amount repaid over a fixed term in regular instalments — the structure behind HP and many personal loans. Fully refundable / cooling-off: Most regulated credit agreements come with a right to withdraw within 14 days of signing. You repay what you borrowed plus any interest accrued for the days you had it.
G
GAP insurance (Guaranteed Asset Protection): An optional insurance that can cover the gap between what your motor insurer pays out if the car is written off or stolen and what you still owe on finance (or what you originally paid). It is never compulsory; consider whether you need it and shop around before buying. GMFV (Guaranteed Minimum Future Value): The value a lender guarantees your car will be worth at the end of a PCP agreement, set at the start. It becomes the optional final (balloon) payment if you choose to keep the car, and it protects you if the car is worth less than expected when you hand it back. Guarantor: A person who agrees to cover the repayments if you cannot. A guarantor loan can be an option for some borrowers, but the guarantor takes on real financial and legal responsibility, so both parties should understand the commitment fully.
H
Hard search: A credit check that is recorded on your file and visible to other lenders. Several in a short time can affect how lenders view you, which is why eligibility is usually checked first with a soft search. Hire Purchase (HP): A secured finance product where you pay a deposit and fixed monthly instalments, and own the car once you have made every payment (plus any option-to-purchase fee). The lender owns the car during the agreement, so it can be repossessed if you fall seriously behind. See our HP guide for detail.
I
Interest: The charge for borrowing money, usually expressed through the APR. Over a longer term you typically pay more interest overall, even if the monthly payment is lower. IVA (Individual Voluntary Arrangement): A formal, legally binding agreement to repay creditors over a set period, used as an alternative to bankruptcy. An active IVA appears on your credit file and can limit borrowing; some lenders may still consider applicants, but there is no certainty of acceptance.
L
Lender: The company that actually provides the money and holds the agreement. A broker introduces you to lenders but is not the lender itself. Loan-to-value: The size of the loan compared with the car's value. A larger deposit lowers the loan-to-value, which lenders may view more favourably.
N
Negative equity: When you owe more on your finance than the car is currently worth. It can happen if a car depreciates faster than you repay, and it matters most if you want to change or sell the car before the agreement ends. PCP's GMFV is designed to protect you against negative equity at the planned end of the term, provided you meet the mileage and condition terms. No deposit finance: An agreement where you do not put money down at the start. It can help with upfront affordability, but borrowing more usually means higher monthly payments and more interest overall.
O
Option to purchase fee: A small fee, usually charged with the final payment on HP, that transfers ownership of the car to you. Outstanding balance: The amount you still owe on your agreement at any given point, including any interest yet to be charged.
P
Part-exchange (trade-in): Using your current car as a deposit towards the next one. The dealer values your car and puts that amount towards the new finance; if you still owe money on the old car, that may be settled and factored in. PCP (Personal Contract Purchase): A finance product with lower monthly payments than HP, because part of the car's value is deferred to an optional final (balloon) payment. At the end you can pay the balloon and keep the car, hand it back (subject to mileage and condition), or part-exchange. Mileage limits usually apply. Personal loan: An unsecured loan you use to buy the car outright, so you own it from day one. The car is not security for the loan, though missing payments still harms your credit and the lender can pursue the debt. Proof of address / income / identity: The documents lenders typically ask for to verify who you are and that the repayments are affordable — for example a driving licence or passport, a recent utility bill or bank statement, and payslips.
R
Refinancing: Replacing an existing finance agreement with a new one, sometimes to lower the monthly payment or change the term. Whether it saves money overall depends on the new rate and term. Representative APR: The APR that at least 51% of accepted customers are expected to receive on an advertised deal. It is a comparison guide — the rate you are personally offered may differ based on your circumstances. Repossession: When a lender recovers a car used as security because the agreement has broken down. On HP, once you have paid a third or more of the total, the lender usually needs a court order to repossess.
S
Secured finance: Finance where the car acts as security for the debt (as with HP and PCP), meaning it can be repossessed if you seriously default. An unsecured product, like most personal loans, is not tied to the car in this way. Settlement figure: The amount needed to clear your agreement in full at a given date, including any interest adjustment. Ask the lender for it before settling early or part-exchanging. Soft search: A preliminary check of your eligibility that has no initial impact on your credit score and is not visible to other lenders. If you proceed, a hard search may follow later, only with your consent. Subject to status: A standard phrase meaning any offer depends on the lender's assessment of your credit and affordability. It is a reminder that acceptance and terms are never certain.
T
Term: The length of the agreement, usually in months (commonly 12 to 60). A longer term lowers the monthly payment but generally increases the total interest you pay. Total amount payable: The full cost of the finance — everything you will pay across the whole agreement, including deposit, interest and fees. Always compare this figure, not just the monthly payment, to understand the true cost.
V
Voluntary termination (VT): A statutory right on regulated HP and PCP agreements to end the agreement early once you have paid at least half of the total amount payable (topping up to the halfway point if you have not yet reached it). The car is returned, and fair wear and tear rules apply. Vulnerable customer support: Extra help for anyone whose circumstances — such as health, a life event or financial difficulty — mean they may need more support to make a good decision. Ask if you need adjustments; a good broker or lender will have a route for this.