Finance speak

The FLA takes the mystery out of car finance.

On this page we explain some of the technical terms you may come across when arranging motor finance.

Click on the term you want explained and the meaning will appear in the box below.

  • Administration Fee

    A charge for setting up the finance and issuing the documents. The cost will be included in the total amount payable and usually taken into account when calculating the APR. Sometimes called Documentation Fee or Credit Acceptance Fee.

  • Agreement Period

    The length of time you agree to take to repay the finance (See also: Term)

  • APR (Annual percentage rate)

    A standard method of calculating the full cost of the interest and other charges on the finance. You should use the APR to compare the cost of different finance options, although lease agreements will not show an APR.

  • Balance Financed

    The amount you need to finance – usually the price minus any deposit or deposit allowance

  • Balloon Payment

    A one-off payment made by you at the end of some finance agreements. It will reduce your monthly payments.

  • Cashback

    An incentive sometimes used by manufacturers to tempt new car buyers. Once you finance the car a certain amount of cash is refunded to you direct from the manufacturer.

  • Conditional Sale

    As the name implies, Conditional Sale means that the vehicle is sold to the customer subject to certain conditions, which typically include: all the payments are made, and made on time; the vehicle is comprehensively insured at all times; and the vehicle is kept in good condition.

  • Credit Rating

    A scoring system used by finance companies to help decide how much finance to make available to you. Click here for more information

  • Deposit Allowance

    A new car dealer can sometimes make a contribution to top-up your deposit payment. This will reduce the cost of your finance but will be tied to you accepting the car manufacturer finance.

  • Documentation Fee

    A charge for setting up the finance and issuing the documents. The cost will be included in the total amount payable and taken into account when calculating the APR. Sometimes called Administration Fee or Credit Acceptance Fee.

     

  • Early settlement

    Paying off a finance agreement before the agreed term is completed. By doing this you may save on interest charges but there may be an early payment charge.

  • Fixed rate

    The interest rate charged and the monthly payments are fixed throughout the length of the agreement.

  • Flat rate

    The base interest rate charged on the finance. Dealers will sometimes quote a monthly or annual flat rate but you should ask for the APR, which more accurately describes the true cost of the finance.

  • Vehicle History Check

    A background check to reveal whether a used car has been stolen, is an insurance write-off, or has any outstanding finance secured against it. Most car dealers will only sell cars which have been history checked; if not, it is highly recommended you carry out a check yourself. Click here for more information.

     

  • Minimum Guaranteed Future Value (MGFV)

    Sometimes known as guaranteed future residual value. It is the lowest amount that your car is guaranteed to be worth at the end of a contract purchase deal and will usually be the same as the deferred amount on the finance.

     

  • Residual value

    The value of your car at the end of the finance agreement, after a certain time and mileage. It may or may not be guaranteed, depending on the terms of your agreement.

  • Secured loan

    The finance company has lent you money for a specific purpose and can repossess the item being financed, such as your house or car, if you fail to pay the money owing.

  • Secondary rental

    If you want to keep renting the car once the original lease comes to an end, you can usually arrange another deal. This is called a secondary rental.

  • Term

    The length of time you agree to take to repay the finance (See also: Agreement period).

  • Total amount payable

    The total cost of the finance, including any interest or other charges, if you repay the finance over the agreed period. This is a good way to compare the actual cost of various types of motor finance.

  • Unsecured loan

    The finance company has lent you money which you have agreed to pay back. The finance company cannot claim any of your property if you fail to repay the loan unless it takes court action.

Other Products

FLA members are able to offer a wide range of finance products to protect you against unexpected events, such as accidents, sickness or redundancy.

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What to take

If you arrange your motor finance at the dealership where you are buying the car, it may be possible to drive away the same day. However, by law, the dealer and lender will have to make certain credit and identity checks.

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