Car Dealership Lingo You Must Know in 2023!

Staying up to date with the lingo of the car industry can help you far beyond expanding your vocabulary. With our essential glossary below, any confusion you may have regarding your car insurance small print, new financing contract or general industry jargon will be quickly put to rest so that you can take control. While our experts at Eden will be happy to clarify anything you don’t understand, it’s always safer to approach new situations with as much know-how as possible. So, feel free to browse or search for any of the must-know car dealership lingo in 2023 below!

ABI (Association of British Insurers)

What is ABI? The Association of British Insurers (ABI) is a respected trade association comprising insurance providers in the United Kingdom. Its primary objectives include providing consumer advice, collaborating with the government to shape regulations and policies, and fostering transparency, best practices, and healthy competition within the insurance industry.

Annual Premium

What is an annual premium? The annual premium refers to the total amount you pay for your car insurance coverage when you choose to make a single payment for the entire year upfront. By opting for an annual payment, you have the advantage of potentially saving money compared to other payment frequency options. Paying your car insurance premium annually eliminates the need for monthly or quarterly payments, which may include additional administrative fees or interest charges.

APR (Annual Percentage Rate)

What is APR? APR, which stands for Annual Percentage Rate, is a crucial metric that reflects the total cost of borrowing funds over a year. It serves as an indicator of the interest you will pay on a loan on an annualised basis. The APR encompasses not only the loan's interest rate but also considers other charges, such as administrative fees, that you may incur throughout the loan term. By considering these additional costs, the APR provides a more comprehensive understanding of the total expense associated with borrowing. When comparing loan offers, a lower APR is generally more favourable as it suggests lower overall borrowing costs.


What are arrears? Arrears refer to the amount of money that you owe when you have fallen behind on your scheduled payments. In the context of car financing, being in arrears indicates that you have not made the required payments according to the agreed-upon payment schedule. It typically occurs when you have missed one or more payments. It is important to note that falling into arrears can have serious consequences, including the risk of vehicle repossession. To avoid such situations, it is crucial to stay on top of your payment obligations and communicate with your car finance provider if you encounter financial difficulties that may affect your ability to make timely payments.

Balloon Payments

What is a balloon payment? Balloon payments are large lump-sum payments made at the end of a loan or lease agreement. They are commonly associated with Personal Contract Purchase (PCP) deals, allowing customers the option to buy the vehicle by making a final substantial payment. Balloon payments can also be a condition in some hire-purchase agreements. By deferring a significant portion of the total cost to the end of the agreement, borrowers benefit from lower monthly payments during the term.

Car Insurance Policy

What is a car insurance policy? A car insurance policy refers to the official documentation that outlines the terms and conditions of your insurance contract. It serves as a legal agreement between you and the insurance provider, specifying the coverage, rights, and responsibilities associated with your car insurance. There are three primary types of car insurance policies:

  • Third-Party: A third-party car insurance policy provides coverage for damages and injuries caused to other parties involved in an accident that you are responsible for. It typically includes liability coverage for property damage and bodily injury to others. However, it does not cover damages to your vehicle.
  • Third Party, Fire and Theft: This type of car insurance policy offers the same coverage as third-party insurance, providing protection against damages and injuries caused to others. Additionally, it includes coverage for fire damage to your vehicle and theft-related losses.
  • Comprehensive (Fully Comprehensive): Comprehensive car insurance, also known as fully comprehensive, offers the highest level of coverage. It not only protects damages caused to other parties but also covers damage to your vehicle, regardless of fault. Comprehensive insurance often includes coverage for theft, fire, vandalism, and various other perils. This type of policy offers the most extensive protection and peace of mind.

Cooling Off Period

A cooling-off period grants you 14 days to withdraw from a car finance agreement, starting from the day you sign the contract. It applies to all types of finance agreements, regardless of whether they were arranged in person or online.

Courtesy Car

A courtesy car is a vehicle provided by a third party, such as your insurance provider or dealership in the event of an accident or breakdown that renders your car unusable. It serves as a temporary replacement vehicle while your car is being repaired. The provision of a courtesy car offers convenience and helps ensure that you can continue with your daily activities.

County Court Judgements (CCJ)

A County Court Judgement, commonly referred to as a CCJ, is a court order issued when a person fails to repay a debt they owe. It serves as a legal action taken against individuals who have defaulted on their financial obligations. A CCJ becomes part of the individual's credit record, impacting their creditworthiness. When applying for car finance or any other form of credit, it is essential to disclose any CCJs as failure to do so could have adverse consequences. Being transparent about CCJs allows lenders to make informed decisions regarding loan approvals and terms based on the individual's credit history.

Credit History

Credit history refers to a detailed record of an individual's past and present financial obligations, including loans, credit cards, and other forms of debt. It provides a comprehensive overview of how responsible a person has been in repaying their financial obligations to various institutions such as banks, lending companies, and credit card providers.

Credit Rating

A credit rating, also referred to as a "credit score," is a numerical representation of your financial reliability. It reflects how well you meet your financial obligations based on your credit history. When applying for loans such as car finance, lenders consider your credit rating to assess your creditworthiness. A higher credit score increases your likelihood of approval for loans.

Credit Search

What is a credit search? Finance companies conduct credit searches to assess an individual's creditworthiness. They can perform either a soft search or a hard search. A soft search doesn't appear on your credit report and remains invisible to lenders. A hard search is visible and multiple hard searches at once may raise concerns. Typically, finance companies perform a hard search when you initiate the finance application.

Down Payment/Deposit

What is a down payment? A down payment, also known as a deposit, is an initial payment made when purchasing a car to reduce the loan amount. It is usually a percentage of the total price of the vehicle. A larger down payment decreases the loan amount and can have several advantages. It can lower your monthly payments, reduce the interest you pay over the loan term, and potentially qualify you for better interest rates. It's important to carefully consider your budget and financial goals when determining the appropriate down payment amount for your situation.

Early Settlement

Early settlement, also known as early repayment, refers to the option of ending your car finance agreement before the scheduled completion date by paying off the remaining balance to the lender. If you decide to pursue an early settlement, it is necessary to contact the car finance company to obtain a settlement figure. It's important to note that there might be an early repayment charge associated with ending the agreement ahead of time. Considering this charge and any potential savings or benefits from an early settlement is crucial in making an informed decision.


What is equity? Equity refers to the positive difference between the current market value of a car and the amount owed by the borrower. It comes into play when the market value exceeds the outstanding loan balance. In the case of a PCP (Personal Contract Purchase) agreement, if the car's value at the end of the contract is higher than the guaranteed minimum future value (defined below), this equity can be utilized as a deposit for a subsequent loan on another financing deal.

Negative equity

What is negative equity? Negative equity is a term used when the true value of a car is less than the amount owed on it. It commonly occurs when a car is part-exchanged, and the outstanding finance on the vehicle exceeds its market value. Negative equity can complicate financial transactions and is important to consider when dealing with car finance agreements. While it has become less prevalent in recent times, it remains a concept that can confuse buyers.

Extended Warranty

What is an extended warranty? An extended warranty is an additional coverage plan that you can purchase to protect your vehicle beyond the manufacturer's warranty. It offers extended coverage for repairs and maintenance, typically after the original warranty has expired. This can provide peace of mind by guarding against unexpected repair costs. Extended warranties often come with specific terms and conditions, so it's important to review the coverage details and consider factors such as the duration, coverage limits, and any exclusions before deciding.


What is an ex-demo? Ex-demo, short for "ex-demonstrator," refers to vehicles that have been used by dealerships for test drives and promotional purposes. These vehicles are often offered for sale at a lower price compared to brand-new models with similar specifications. Ex-demo cars are typically well-maintained and have low mileage since they have only been used for display and short test drives. It's important to note that the dealership will be listed as the first owner of the vehicle in the V5 logbook, even though it has not been privately owned.

Financial Conduct Authority (FCA)

The FCA is the regulatory body in the United Kingdom that oversees and regulates financial services. It operates independently from the government and is responsible for ensuring fair and transparent practices within the financial industry. The FCA's primary objective is to protect consumers and promote healthy competition in financial markets. It sets rules and regulations that financial institutions, including car finance companies, must adhere to so that consumers are provided with fair deals and adequate protection.

Fixed-rate Interest

Fixed-rate interest refers to an interest rate that remains constant throughout a loan or finance agreement. With a fixed-rate interest, the amount you pay each month remains the same, providing stability and predictability in your repayment schedule. Although fixed-rate loans may have slightly higher interest rates compared to variable-rate loans, the benefit is that you are protected from potential increases in interest rates over time. This allows you to budget and plan your finances more effectively, knowing that your monthly payments will not fluctuate due to interest rate changes.

FSH (Full-Service History)

FSH stands for Full-Service History, which refers to a comprehensive record of a car's maintenance and servicing. When a car has FSH, it means that all the required services and inspections have been carried out at the recommended intervals, and the service book has been stamped and documented accordingly. Having a Full-Service History is highly beneficial for a car's value and demonstrates that it has been well-maintained and taken care of by previous owners.

GAP Insurance

What is GAP insurance? GAP insurance, which stands for Guaranteed Asset Protection insurance, is designed to cover the difference between the current market value of your vehicle and the amount you still owe on it. This type of insurance becomes relevant if your vehicle is declared a total loss due to factors such as accidents, theft, or natural disasters. In such cases, the insurance company typically pays you the current market value of the vehicle. However, if the market value is less than the outstanding loan or finance amount, you would be responsible for covering the remaining balance. GAP insurance fills this gap by covering the shortfall, ensuring that you are not left with a financial burden.

Guaranteed Minimum Future Value (GMFV)

What is Guaranteed Minimum Future Value? In the context of a PCP (Personal Contract Purchase) car finance agreement, the GMFV is the estimated value of the vehicle at the end of the contract period, considering factors such as depreciation, market fluctuations, car model, mileage, condition, and the agreed-upon contract terms. It represents the amount you will need to pay if you decide to purchase the car outright at the end of the PCP agreement. It serves as a guaranteed value that sets the purchase price at the end of the agreement, provided you have met the requirements of the contract, such as maintaining the vehicle and adhering to the mileage limit.


What is a guarantor in finance? A guarantor is typically a parent or close relative who agrees to assume the debt if the borrower becomes unable to make repayments. Guarantors are commonly required for specialist or guarantor loans, as well as loans for individuals with limited credit history or younger borrowers. The guarantor provides an additional layer of financial security for the lender, increasing the chances of loan approval for the borrower.

Hire Purchase (HP), Personal Contract Purchase (PCP) and Personal Contract Hire (PCH)

For these definitions, please see our dedicated article here.

Joint Application

What is a join application? A joint application refers to the process of applying for and signing a finance agreement with two or more individuals. In a joint application, all parties involved share the responsibility of repaying the loan or finance agreement. This approach allows multiple individuals to combine their financial resources and creditworthiness to increase the likelihood of loan approval and share the obligations associated with the loan.

Outstanding Balance

What is an outstanding balance in finance? The outstanding balance represents the remaining amount that you owe on your car finance agreement. The specific value of the outstanding balance depends on the type of car finance product you have selected. In the case of a fixed interest rate agreement, the total amount is determined at the start of the agreement and is inclusive of the entire outstanding balance. However, for agreements with variable interest rates, the outstanding balance typically reflects only the principal amount owed and does not include the accumulated interest throughout the agreement.


What is part exchange? Part exchange refers to the process of trading in your existing car as part of a transaction to purchase a new one. The value of your old car will be used towards the deposit required for the new car. Depending on various factors that determine the value of your old car, the trade-in value may cover the entire deposit, eliminating the need for additional payment. However, in most cases, the value of the old car will be deducted from the deposit amount, and you will be responsible for paying the remaining difference between the deposit and the purchase price of the new car.

Pre-Reg (Pre-registered)

What is pre-reg? A pre-registered vehicle is a car that has been purchased by a dealer and registered in their name as the first owner on the official V5C registration document. These vehicles are often offered at discounted prices, allowing potential buyers to save money. However, since the dealer chooses the specifications and features of pre-reg cars based on their sales targets and manufacturer bonuses, there may be limited options in terms of colour, equipment, and specifications compared to brand-new vehicles.


What is a principal in finance? The principal of a loan refers to the initial amount of money borrowed to finance the purchase of a car, including applicable taxes and fees. It does not include any interest charges. Throughout the loan, as you make payments, a portion of each payment goes towards reducing the principal balance, while another portion covers the interest accrued on the loan.

Residual Value

What is the residual finance of a car? In car finance, the residual value refers to the anticipated resale value of the vehicle after the financing agreement. When you enter a car finance contract, the finance company estimates the future value of the car. This value plays a significant role in determining the fixed monthly payments you will make. The residual value is influenced by factors such as the annual mileage limit, the duration of the agreement, and the expected depreciation of the vehicle over the contract period. By considering these factors, the lender can estimate the residual value and structure the financing terms accordingly.

Total Repayable

What is the total repayable? The total repayable is the overall amount that you will need to repay to the lender. It includes not only the original loan amount but also the total cost of credit, which encompasses the interest charges and any additional fees associated with the loan. Essentially, it represents the complete sum that you are obligated to repay, considering both the principal amount borrowed and the cost of financing the loan.

Trade-In Value

The trade-in value represents the amount of money that a dealership or buyer is willing to offer for your current vehicle when you trade it in as part of a transaction to purchase a new vehicle. It is determined by considering various factors including the condition of the vehicle, its age, mileage, market demand, and other relevant factors. The trade-in value serves as a credit towards the purchase price of the new vehicle, reducing the amount you need to finance or pay out-of-pocket.

Variable Rate Interest

Variable rate interest is an interest rate that can change over time during your loan or finance agreement. Unlike fixed-rate interest, where the rate remains constant throughout the term, the variable rate can fluctuate. This means that the amount you need to pay each month may vary as the interest rate changes. While variable-rate interest may initially be lower than fixed-rate interest, it's important to note that it has the potential to increase, which could result in higher monthly repayments.

Voluntary Termination

What is voluntary termination? Voluntary termination is a legal provision that allows a borrower to end a car finance agreement before the agreed-upon term. This option enables the borrower to return the vehicle to the lender. However, it's important to note that the borrower is typically responsible for paying around half of the total agreed finance amount. This includes any applicable fees, arrears, or charges. Voluntary termination provides borrowers with the flexibility to terminate the agreement early, but it's crucial to review the terms and conditions of the specific finance agreement to understand the exact implications and costs involved.