An additional charge – usually to cover the costs of administration - that is sometimes made by the lender (finance company) and is in addition to the interest charged to the customer.
Annual Percentage Rate (APR)
Officially defined as `That rate at which the amount of credit advanced is equal to the sum of the present values of each repayment of capital and of each payment in respect of the total charge for credit`. An APR is the total percentage rate of interest that is charged against the advance/amount of finance borrowed by a customer. The APR includes the flat/fixed interest rate charged by the lender, plus any other administration fees or charges incorporated into the agreement. APRs were introduced as a means to give the customer the chance to compare the cost of one finance facility with another on a fair basis.
This is a method of funding the use but not the ownership of a vehicle, the customer (Lessee) is renting the vehicle for a fixed rental from a leasing company (Lessor) for an agreed period. At the end of the contract the vehicle is handed back to the leasing company. A Contract Hire lease transfers substantially all the Risks and Rewards of ownership to the Lessor and is an `Off- Balance Sheet’ method of funding.
An initial payment of a portion of the capital cost of the vehicle. This usually takes the form of cash / cheque or equity in a part exchange vehicle
An insurance policy that bridges the gap between the insurance company payout and finance company settlement (or original vehicle cost) in the event of total loss or theft of the vehicle
Guaranteed Minimum Future Value (GMFV)
This is set by the manufacturer or finance company and allows the customer to know the least amount the car will be worth at a point in the future and it normally guarantees the balloon payment on a Personal Contract Purchase (PCP). It is normally calculated after taking into consideration the retail price of the vehicle, the length of time the customer wants to keep the vehicle and the mileage they will cover during that time.
Hire Purchase (HP)
A Hire Purchase Agreement is a fixed cost, fixed period loan of money to purchase goods. It is a `Tri-Partite` agreement where a finance company HIRES the vehicle to the customer for an agreed period at an agreed monthly sum; the customer can gain ownership (title) by paying an additional sum called the Option to Purchase Fee or Purchase Fee.
A Lease Purchase is a purchase agreement (similar to a Hire Purchase or Conditional Sale). The term `Lease Purchase` was introduced into the finance industry to describe a Hire Purchase or Conditional Sale contract with a payment structure similar to a lease. I.e. Instead of a deposit, `Advance Payments` may be paid and it is usual to have a balloon payment.
The `negative` difference between the actual value of a vehicle and money owed on that vehicle.
The process when a customer exchanges their car with a motor dealer to form part or all of a deposit towards the price of their next new vehicle
Personal Contract Purchase (PCP)
A PCP is in essence a Purchase agreement (similar to a Hire Purchase or Conditional Sale) that is governed by vehicle mileage and term, where a predicted minimum value (GMFV) is offset until the end of the agreement. At the end of the agreement the customer has three options:
- 1. Part exchange for another car
- 2. Pay the final payment and keep the car
- 3. Return the car and walk away
A loan of money to purchase any item the customer wants – including vehicles. The facility is widely offered by Banks, Building Societies, Direct Lenders and Finance Companies.
Specialist Automotive Finance (SAF)
SAF is a kitemark developed by the FLA to raise standards and improve skills for those involved in the sale of motor finance. SAF will improve consumer confidence and change consumer awareness of showroom finance.
Legal ownership of a vehicle.