Vehicle Finance: Terms to Know
Are you a first-time car buyer? Perhaps you’d like to be more prepared before you purchase your next vehicle? If this is you, then you will find this glossary of car finance terms very useful. Here, you can improve your vocabulary with financial jargon so that you can make more informed decisions the next time you intend on entering a car finance agreement.
In This Guide:
Car Finance Terms Explained
Car financing is a specialised field with many terms and phrases that can leave consumers confused. The jargon can be overwhelming and even intimidating. That’s why we advise you to top up your vocabulary with the following vehicle financing terminology.
Car Finance Glossary
Vehicle Finance Terms Explained: A-Z Car Finance Jargon
Agreement
Negotiated terms that all parties agree to. A car finance agreement becomes a legally bound contract when signed.
Balloon Payment
A final lump sum of money that needs to be paid at the end of your vehicle finance contract term.
Borrower
An individual who accepts credit from a lender with the understanding that the loan needs to be repaid within an agreed-on term.
Contract Period
The agreed-upon payment term where instalments need to be paid monthly before the contract end-date.
Comprehensive Car Insurance
A thorough insurance package where you get basic cover with additional coverage for damage caused to other parties and their property.
Credit History
A record of your financial movements. Your credit history reflects repaid debts as well as debts owing. The record is used by finance providers to determine whether you have a history of paying debts dutifully.
Credit Rating/Score
A points system based on your credit history. Creditors will use your credit rating to decide whether you qualify for a loan and if you will be able to afford your repayments.
Deposit
A payment that’s made at the beginning of the payment plan. A car deposit is typically more than the monthly instalment amount.
Depreciation
In this case, depreciation refers to the decrease in value of a car over time.
Equity
Equity is the difference between the resale value of a vehicle that’s being financed and the amount you owe on it. If the amount you owe on a car is less than its value, then you have positive equity.
FICA
The Financial Intelligence Centre Act (FICA) works with finance providers to prevent money laundering, tax evasion, and terrorist financing activities.
Fixed Interest Rate
The interest rate will not change throughout the loan term and your instalment amount will stay the same.
Lender
A person or company that lends an individual money with the agreement that the borrower will pay back the loan.
Linked Interest Rate
A linked interest rate (or variable interest rate) is linked to the prime rate, which means that it will fluctuate as the prime interest rate goes up or down.
Market Value
The market value of a car is typically always lower than the retail value. The worth of a car’s market price is determined by the vehicle’s age, make, and condition.
Monthly Instalment
The amount you have agreed to pay the lender every month - which consists of capital and interest.
Payment Holiday
One or more months of relief where you do not have to pay your vehicle finance instalments. A payment holiday is typically given at the beginning of a contract term.
Prime Rate
An interest rate used by financial providers (lenders) to charge their most creditworthy customers.
Refinance
Where a previous loan is replaced with a new one. Refinanced loans often come with different terms and the aim is typically to decrease your monthly instalments or shorten the loan term.
Repossession
If you fail to make your loan repayments, then your finance provider can repossess or remove your car from your ownership.
Residual
A lump-sum payment or balance that’s due at the end of a financial agreement.
Retail Value
The actual value of a car. It’s the price you would pay if you purchase the car new from a dealer.
Trade Value (Book Value)
The average amount that a dealer will buy a car for (which is usually less than the retail value).
Vehicle Identification Number (VIN)
A unique 17-digit alphanumeric number that can be used to identify a vehicle.
Warranty
A written guarantee from your dealership promising to repair or replace specific parts of a vehicle. A warranty generally expires after 2-3 years but can be renewed at an additional fee.
How to Find the Best Car Finance Deals
Finding the best vehicle finance shouldn’t be a headache. That’s why we have simplified the process by providing a free online comparison tool. All you need to do is fill in a few details, and we’ll direct you to some of the most competitive financial providers servicing your region. We’ll help you to compare vehicle finance rates and terms so that you find a payment plan that will suit your needs and your budget.