Glossary

Although car finance is becoming more common, many people are still baffled by some of the terminology and acronyms used in brochures and contracts. But don't let this put you off, we have put together a jargon buster* to help you understand them.

Guaranteed Minimum Future Value (GMFV) – This is what the finance company guarantees the car will be worth at the end of the agreement, ultimately ensuring that there are no depreciation worries for buyers.

Personal Contract Purchase (PCP) – Fixed, low and affordable monthly payments due to a large amount of the car's value being deferred to the end of the contact. This typically comes with a GMFV and flexibility at the end of the agreement to part exchange, keep or return the vehicle.

Contract Hire – A popular option for business customers who would rather hire a vehicle than own one, without the worry of depreciation or having to sell the vehicle on at the end of the agreement. Buyers taking this option can reclaim up to 50% of the VAT on their rentals, and benefit from reduced regular payments as opposed to one lump sum. 

Vehicle Excise Duty (VED) – Most commonly known as road tax – and takes into consideration the vehicle's fuel type and CO2 emissions. Also described as the amount of tax paid on any vehicle that will be used or parked on a public road.

Excess Mileage – Pence per mile charge applicable should the pre-agreed contract mileage be exceeded.

Residual Value (RV) – The future value of the vehicle taking into account the age and mileage at the end of your contract. This figure is usually referred to as a percentage, so if a car is worth £20,000 new and is worth £10,000 after three years, then its RV after the three years will be 50%.

Wear & Tear – When normal usage of the vehicle causes deterioration. Buyers can also take out a maintenance contract, which is a one-off payment that covers the cost of vehicle servicing requirements and maintenance items such as brake pads, discs and windscreen wipers to help combat the wear and tear of the vehicle.

50:50 – A deal which sees the customer pay 50% of the vehicle value as a deposit up-front and then pays nothing further until month 24 of the agreement. One of the three standard end-of-contract choices is then available (keep, return or part-ex). This deal is best for customers who still favour cash payments with the bonus of a guaranteed residual value.

Hire Purchase – Fixed regular payments spread over an agreed period with no mileage restrictions. Provided all payments are made by the end of the contract, the vehicle is then yours to keep. This provides the customer with an easy way of budgeting monthly outgoings.

GAP Insurance – If your car is written off or stolen, this insurance pays the difference (or 'gap') between the car invoice value and your insurance pay out.

*Courtesy of BMW Financial Services