Vehicle Finance Jargon Buster

11/03/2025

When it comes to securing your next ride, we want to make the process as simple as possible.

With more and more people opting for finance agreements to fund their next vehicle purchase, we understand that decoding technical financial terms can be daunting, and potentially off-putting, for some buyers. That’s why we have written this handy guide to understanding all things car finance.

PCP -

In a Personal Contract Purchase (PCP Conditional Sale) agreement, the customer makes a deposit and then pays monthly instalments over an agreed term (usually between 24 and 48 months).

At the end of the term, the customer has the option to buy the vehicle by paying the outstanding balance, return the vehicle to the finance company (terms and conditions apply), or use the vehicle's trade in value (less Optional Final Payment) as a deposit towards the purchase of another vehicle.

Conditional Sale -

In a Conditional Sale/ Purchase Plan agreement, the customer makes an initial deposit and then pays monthly instalments over an agreed term (usually between 24 and 60 months). Once all repayments have been made, title to the goods will pass to the customer.

APR -

This stands for Annual Percentage Rate and is the yearly cost of borrowing money including interest and fees. Make sure to take note of the APR figure on any vehicle finance agreements. A lower APR means it’s cheaper to borrow money, whereas a higher APR means your monthly payments will be higher. APR % are based on a number of factors. Some retailers work with fixed APR, whereas others may be variable. The APR a customer is offered may also be based on their credit history.

FCA -

FCA stands for Financial Conduct Authority. This is an independent UK regulatory body that oversees the financial service industry. The FCA protects consumers from harm caused by financial services, such as vehicle finance agreements. Consumers should check and confirm the FCA regulatory status of a firm before dealing with them, this can usually found in Status Disclosure information that is provided by reputable businesses offering finance prior to entering into an agreement .

Annual Mileage -

This is the limited of the annual miles you are allowed to drive as part of some finance agreements without incurring extra charges. Any additional miles driven will be charged at a pre-agreed rate, usually at a rate of a pence per mile. It is advisable to carefully consider the annual mileage anticipated during the lifetime of the agreement as additional mileage charges can be higher than anticipating them at the outset of the agreement and agreeing more accurate limits.

Trade-In Allowance -

This is a price for a vehicle that is offered when someone part-exchanges their existing car with a dealer when buying a replacement.

For example, if a dealer offers you £6,000 for your old vehicle, and have a trade-in allowance offer of £1,500, the price of the new car purchase will be reduced by £7,500. The additional £1,500 is only available with the purchase of a new car and a part-exchange has happened.

Deposit Allowance -

A deposit allowance, often called a deposit contribution, is a sum of money that a dealer adds to a deposit when taking out a vehicle finance agreement. This can only be redeemed when finance is chosen, not when a car is bought outright.

For example, if you were to put a £5,000 deposit down on a car, and the dealer was offering a £1,000 deposit allowance, £6,000 in total would be taken from the balance to finance figure - reducing monthly payments.

Optional Final Payment -

An optional final payment is a lump sum payment that you can make at the end of a vehicle finance agreement, if you choose, to own the car. The optional final payment figure is calculated at the start of the agreement, and for some agreements this can also be known as the Guaranteed Future Value (GFV). Full details of this will be discussed when explaining your finance agreement.