The A to G Of Car Loan Terminology

Annual Equivalent Rate (AER)
AER is how interest that you are owed is calculated. If you were paid interest annually on your cash/savings it shows your earnings on it. This is the advisable way to compare savings products and current accounts.

Annual Percentage Rate (APR)
Annual Percentage Rate - APR is the annual rate of interest you will pay on any debt and usually includes costs and fees. By law APR must always be disclosed. The standard way to calculate it is by taking the average interest rate over the loan term. For example with a mortgage, the interest rate on a mortgage when accounting for the interest, mortgage insurance, and certain closing costs including points paid at closing.

Authorised Overdraft
This is a pre-arranged limit that a person can exceed their balance in an account.

Credit
Is an agreement to borrow money over a period of time with a charge of interest included in the total sum to be repaid.

Creditor
The source from where any money has been borrowed from.

Credit Cards
Credit Cards are issued by Creditors and by paying for things by this means you borrow and have agreed to pay the money back with interest if you pay less than the full amount within the statutory interest free period often 50 days.

Credit Sale Agreement
This is an agreement, usually with a retailer partnered with a finance company, where you can buy goods and finance it with a loan over a set period, for example in-store finance for household machinery. The goods are immediately your property and cannot be taken off you if you default on payments.

Credit Scoring
Everyone has a credit score based on what level of risk they represent which is calculated on how many and the type of accounts you have, prompt bill payment, outstanding debt or county court judgments.

Conditional Sale Agreement
This is the same as a Hire Purchase Agreement.

Debtor
A person who owes money to someone or some organisation.

Default
If you default on a payment, loan or a debt it means you fail to pay and will often result in a penalty charge.

Depreciation
Depreciation is the loss of value of something you own and use like a car. In the dictionary it is the decline in value of a "capital asset".

Direct Debit
A pre-arranged agreement made by an account holder from a bank or building society to another organisation, often a bill payment or membership fee.

Fixed Interest Rate
A fixed interest rate is what you agree to pay for a certain period, usually for a mortgage, so that you can budget accordingly knowing that the payments will not alter for that term.

Guaranteed Final Value(GFV)
The GFV is also known as the 'balloon payment' which is the final payment usually for a car bought on a Personal Contract Purchase (PCP) based on its predicted depreciation.

Hire Purchase (HP)
Hire Purchase is another method of purchasing a car or household equipment. You agree to make payments but do not own it until you have paid all agreed installments. Technically, until that time you have hired it and the company you have bought it from still owns it.


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