Learn the Carlingo: Car Finance Terminology Explained

One of the biggest practicalities to face when buying a car is how you fund it, and alongside the fun of discovering your new vehicle, finances have to be one of your first considerations. Luckily, there are options available to spread the lump sum purchase prices of both new and used cars, without which it would be pretty unfeasible for many. 

Used car finance is something we’re proud to offer here in Harrogate at Carlingo as it unites our customers and their ideal car in an affordable way. It can, however, be a daunting step, presenting a big commitment. It feels like there’s a lot of finance-specific jargon involved!

Understanding car finance is vital in order to not only make the right decision but also ensure you’re getting the best deal for you. 

The Carlingo team talks car finance with customers on a daily basis, and we’re keen to break down the terms that will crop up on your car finance journey. Read on to discover what these words, phrases and acronyms mean… 

Let’s learn the lingo  

APR - Annual Rate Percentage

Annual Rate Percentage, almost always referred to as APR, is, in layman’s terms, the interest rate you’ll pay on the amount that you borrow. It’s the total cost of borrowing for a year plus any fees you have to pay to get the loan. 

Balloon payment 

In the case of a Personal Contract Purchase (we’ll get to that shortly), you may have what is known as a balloon payment to make to the car finance lender at the end of the agreement. This defers a part of your loan to the end of the agreement, which generally makes your monthly payments lower. 

If you choose to pay the balloon payment, the car is yours. If not, you can give the car back and walk away (subject to condition and mileage), upgrade to a new vehicle, or refinance that final lump sum. 

Credit score

Think of your credit score like a financial CV, rating you for your reliability in paying back money that you’ve borrowed. Credit agencies, responsible for keeping the score, gather this information from banks, utility companies, and local authorities, to build an overall picture of your financial health. 

The better your credit score, the broader your options are for borrowing money, giving you good ground on which to get a good car finance deal. 

Early settlement 

You may find yourself in the position to pay off your car finance in one chunk before the agreement term comes to an end. You can then request an early settlement figure from your finance provider in order to pay back the loan in full; this would make the car yours much sooner! 

The terms of early settlement will depend on the agreement you signed - so check the small print before you sign.  

Equity

Equity refers to what an asset would be worth if it was liquidated - that’s sold for cash. 

Fixed rate

Fixed rate is usually associated with the interest on a loan that you take out, such as car finance. It means that the interest rate won’t change throughout the specified term. As we know, interest rates can change in response to economic conditions, so a fixed rate allows you to budget appropriately regardless of fluctuations.  

HP - Hire Purchase

A Hire Purchase is one way to finance the purchase of your next car, and it sees you pay a deposit initially, and pay the remaining balance over a series of monthly payments, usually across 3-5 years. At the end of the term, the car is yours! 

PCP 

Similar to a Hire Purchase, a Personal Contract Purchase involves paying a deposit and spreading a good deal of the balance across monthly instalments. A PCP deal is geared towards flexibility, so at the end of the term, you can either settle the balloon payment to make the car yours, return the car and either walk away or upgrade to a new model, or refinance the final amount while you decide.     

Residual value 

This is the resale value of your car at the end of your finance agreement. 

Term length 

This is the amount of time you have to pay back your car finance loan. 

Variable rate 

Remember those interest rate fluctuations we talked about earlier? A variable interest rate on your car finance agreement will see you pay interest in line with current interest rates. This could see you hit with higher repayments if it’s high, or enjoy lower ones if things dip. 

Car finance in Harrogate at Carlingo 

Don’t worry if you haven’t learnt the lingo quite yet; at Carlingo, we make things straightforward when it comes to financing your next used car. We’re here to help! The beauty of car finance is it can flex to your circumstances, so come and talk to us. First, why not choose from our wide selection of stock here at our Harrogate dealership? There’s bound to be something on display that ticks all your boxes…