When it comes to car finance loans, there are many complex terms used to document the nature of the financial agreement that car buyers should know. Understanding these terms in your car finance loan’s contract will help you to understand the rules that apply to your specific agreement. Therefore, the finance division at CMH Carshop has compiled a glossary of some of the most common terms used when applying for car finance loans, to help our customers to understand their contracts.

Below are definitions of universal finance terms used in the vehicle finance industry:

Annual Percentage Rate (APR) – The total interest rate of your loan over a year.

Depreciation limit – The maximum depreciation value (minimum resale value) that is allowed for a motor vehicle for that specific year.

Car leasing – When a consumer opts to hire or lease a vehicle from a financier for an agreed period of time and an agreed monthly instalment.

Early settlement fee - Car finance loans are usually taken over a period of a few years. The buyer agrees to pay a set monthly repayment on the loan with interest, thus the total value of the loan is higher than the original amount that was loaned. If a buyer wants to end the financial contract by settling the loan earlier than the time prescribed, a penalty fee will be charged by the financier.

Effective interest rate – The interest rate that reflects the true value of car finance loans, by calculating all costs including penalty fees for early termination.

Interest rate – The percentage of costs that is charged on a loan over a period of time, usually referred to as the percentage per annum.

Residual value – A monetary value that is owed to the financier at the end of the loan period; a percentage of the full amount that was originally borrowed.

Retained interest – This is all unpaid future interest that no longer needs to be paid owing to an early settlement. This saving is often the reason for an early settlement or penalty fee.

Security or surety – Known assets belonging to buyers that a financier can claim in the event of failure to abide by the agreement specified in their car finance loans’ agreement.

Term – The entire duration and lifespan of a loan.

CMH Carshop offers competitive rates on car finance loans

Applying for car finance loans can be overwhelming if you’re not familiar with the process. Understanding the terms that are most commonly used in vehicle finance contracts can help you to make sense of complex contractual terms, thereby assisting you in getting a good deal on your vehicle finance. Call CMH Carshop on 0861 CARSHOP (0861 2277467) to apply for car finance loans today. Alternatively, apply online for vehicle finance in just a few clicks.