Need To Finance A Car? A Quick Glossary of Common Terms

Do you need to buy a car? Are you tripping up on the jargon you are seeing online, or even worse, that is being said to you by the car salesperson?

You aren’t alone! There is truly a glossary to go through, but in relation to common terms like interest and annual percentage rate or APR, these have the same definitions as they would with any other loan. 

So, here, you will be given a snapshot of some of the car-specific jargon when it comes to taking our car finance to help you make a bit more sense of it all. Enjoy!

Personal Contract Purpose (PCP)

PCP or personal contract purpose is part of a car finance loan agreement that is used when a person is looking to purchase a new or used car or another vehicle. In a PCP agreement, you (the buyer) will need to pay a deposit upfront, which is then followed by a fixed monthly payment for a set term. For most car dealerships, this term is between 2-4 years.

Once the term is up, you will have 1 of 3 options: you can either return the car to the finance company, you can purchase the car by paying a final lump sum, which is known as a balloon payment, or you can do a part exchange. This is where you use the value of the car towards the deposit on a new car.

Hire Purchase

Hire purchase is another type of car financing arrangement. This is why you need to pay an initial deposit on the car, which is usually between 10 and 20% of the car’s overall cost. This is then followed by monthly installments over a set time, which typically ranges from 12 months to 60. You may be wondering how this is different from a PCP. Well, with a hire purchase, you eventually own the car outright once you have made all the payments, rather than needing to put a larger sum of money towards a balloon payment at the end of the term. So, for many, it is preferred, but it can be more expensive in the short term.


When you have entered into a hire purchase or conditional sale agreement, if you have paid one-half of the total amount payable on the car, you can terminate the contract and return the car to the finance company. This assumes that you have taken good care of the car, so no giving back something that looks like it has been through a scrap yard!

Mileage Allowance

This relates to the number of miles per year you expect a car to travel, and it is guaranteed before you sign the agreement. This is more common in PCP deals, where the dealership may take back control of the car at the end of the term and may charge you if it has gone over the mileage allowance.


When you have paid over one-third of the total amount payable for a hire purchase or a conditional sale agreement, your car becomes protected. This means that the finance company will not be able to repossess the car unless there is a court order or you give consent. 



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Noman covers automotive news and reviews for Unfinished Man. His passion for cars informs his in-depth assessments of the latest models and technologies. Noman provides readers with insightful takes on today's top makes and models from his hands-on testing and research.

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