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The world of cars can be daunting, and the terms that come with it even more so. That’s why LM Operations has put together a glossary of key car terms you need to navigate the industry with ease. Car finance shouldn’t be seen as a challenge, and our glossary is the perfect tool to take control of your finance journey.

A person hands over car keys with a car behind them.

Car Finance Terms

Car Finance – The process of acquiring a car and re-paying the value of it monthly, during an agreed period of time, with ownership possible at the end of the agreement dependent on the type of finance taken out.

Interest Rates – This is the general amount you will repay on a loan or finance, typically an additional sum of money on top of the value of the car you have financed. Interest rate is displayed as a percentage.

Hire Purchase – This is a straightforward type of finance, where you tend to pay a deposit followed by repayments over an agreed period, with ownership of the car passed over once all payments are made.

Broker – A car finance broker is an intermediary between a customer who wants to purchase a car, and a car finance lender. Brokers shouldn’t charge customers for their services, but they do receive commission from the lender. Commission does not affect the amount you pay.

Car Finance Lender – LM Operations is a car finance lender. We provide lending solutions to the public and car finance intermediaries.

Credit Score – This is a number given to you based on your credit file, which shows lenders your creditworthiness. This score is based on your financial history, and whether you meet repayments, use loans often and pay your bills on time, amongst many other factors. Typically, the higher the score the more credit worthy you are, and the likelier you are to receive more favourable finance terms.

Credit History – This relates to your financial history and how you have borrowed money. A credit history will contain credit card statements, repayments, and marks where you may or may not have made necessary repayments. Your credit history directly impacts your credit score.

Hard Credit Check – A hard credit check occurs when a company, or lender, carries out a detailed search of your credit history. These checks leave a footprint on your credit report and can reduce your credit score slightly.

APR – Annual percentage rate is the amount of interest you will have to pay for a whole year. When applying for finance, you will likely be presented with a percentage followed by APR; this shows you how much interest you are required to pay over a year.

Depreciation – Depreciation is the drop in the value of a car over time.

Negative Equity – Negative equity is directly linked to depreciation and occurs when the repayments you are making on a car are worth more than the value of the car in its current state.

Balloon Payment – As you approach the end of your car finance agreement, a balloon payment may exist. This is a lump sum of money that will need to be paid to complete your finance agreement. A balloon payment tends to exist when you pay a lower monthly fee across your agreement or when you finance without a deposit. A balloon payment can be a substantial amount of money, so you should prepare for this during your agreement.

Residual Value – This is the estimated value of the car at the end of the financial agreement.

Looking to understand more terminology? Visit our other blog that looks at key car terms. 

Show Your Expertise: Apply for Finance

Put your new car finance knowledge to good use and apply for finance with LM Operations. Applying is easy, only 30 seconds of your time and your car finance journey is underway. Apply today.

Representative Example

Borrowing €12,500 over 54 Months with a representative of 17.9% APR, an annual interest rate of 17.9% (fixed) and a deposit of €0.00, the amount payable would be 53 repayments of €327.52 per month, with one final repayment of €526.52 (which includes the option to purchase fee of €199.00), with a total cost of credit of €5,385.08 and a total amount payable of €17,885.08.

LM Operations Ltd are a lender, not a broker. This is for illustrative purposes only and is not a quote or an offer of finance.

Our finance rates vary depend on individual circumstances and is subject to status.