Guide to the Common Dealership Terms When Buying A Car

Here’s a straightforward guide to the most common dealership terms you’ll hear at UK dealerships. When you’re buying a car, especially for the first time, the terminology used at UK car dealerships can feel overwhelming. Understanding these terms can help you feel more confident, negotiate better, and ultimately drive away with a great deal.

1. OTR Price (On the Road Price)

The OTR price is the all-in cost of buying a car, covering everything needed to get you “on the road,” including the car’s price, registration fees, taxes, and number plates. It’s essentially the final price you pay and is often a bit higher than the basic price you might see advertised.

2. List Price

The list price is the manufacturer’s suggested retail price (the “sticker price”). While it’s a helpful starting point, keep in mind you can often negotiate below this, as dealerships sometimes have offers or discounts that can bring down the cost.

3. APR (Annual Percentage Rate)

APR is the interest rate on any car financing, shown as an annual percentage. APR includes both the interest rate and any fees, giving you the true cost of borrowing. It’s worth comparing APRs from different lenders, as your credit score and loan term will affect the rate offered.

4. Deposit Contribution

A deposit contribution is essentially a discount offered by the dealership or manufacturer when you finance through their specific program. For example, if there’s a £1,000 deposit contribution, that amount goes toward your down payment, reducing what you need to put down yourself.

5. PCP (Personal Contract Purchase)

PCP is a popular way to finance a car in the UK. With PCP, you pay lower monthly payments because a large portion of the car’s cost is deferred until the end of the agreement. At the end, you can choose to make a final payment (called a “balloon payment”) to buy the car, trade it in, or return it.

6. HP (Hire Purchase)

With Hire Purchase (HP), you’re paying monthly towards the total cost of the car without a final balloon payment, which means the car is yours once you make the last payment. HP can be a good choice if you plan to keep the car long-term, although monthly payments tend to be higher than with PCP.

7. Balloon Payment

In a PCP agreement, the balloon payment is the final, larger payment needed to own the car outright. It’s calculated based on the car’s estimated value at the end of the agreement. If you decide not to pay it, you can simply return the car or trade it in.

8. GFV (Guaranteed Future Value)

The Guaranteed Future Value (GFV) is what the dealership estimates the car will be worth at the end of a PCP term. This amount determines the balloon payment and gives you a clear idea of the car’s value if you decide to keep it.

9. Mileage Limit

With a PCP deal, you’ll be given a mileage limit—the maximum number of miles you can drive each year. If you go over this, you’ll face extra charges, so it’s important to choose a realistic limit based on your driving habits.

10. Trade-In Value (or Part-Exchange Value)

If you’re trading in your old car, the dealership will give you a trade-in value (or part-exchange value), which is the amount they’re willing to pay for it. This amount is usually deducted from the cost of your new car, lowering what you need to pay or finance.

11. Fixed-Rate vs. Variable-Rate Finance

When you finance a car, you might come across fixed-rate finance, where your monthly payments stay the same throughout the loan, and variable-rate finance, where payments can fluctuate with interest rates. A fixed rate gives you consistency, while a variable rate may save you money if rates go down.

12. Excess Mileage Charge

If you go over your mileage limit on a PCP deal, there’s an excess mileage charge per mile over the limit. This is usually a few pence per mile, so try to estimate your annual mileage accurately to avoid extra costs.

13. Optional Final Payment

In a PCP agreement, the optional final payment is the amount you can pay at the end of the term to buy the car outright. It’s often called the balloon payment. You’re not required to make this payment—you can return the car or trade it in instead.

14. Equity and Negative Equity

When it comes to car financing, equity means your car is worth more than the remaining balance on your loan. Negative equity is the opposite—you owe more than the car’s current value, which can be an issue if you want to trade in or sell it.

15. Road Fund Licence (or Car Tax)

The Road Fund Licence, often referred to as “car tax” or “road tax,” is required for all cars in the UK. The amount varies depending on the car’s CO2 emissions and fuel type. Some dealerships include the first year’s car tax in the OTR price, but after that, you’ll need to pay it annually.

16. Warranty

Most new cars come with a manufacturer’s warranty covering repairs for a set period (usually 3-5 years). Dealerships may also offer extended warranties if you want added peace of mind for a longer period, especially if you plan to keep the car long-term.

17. Residual Value

Residual value is the estimated worth of a car at the end of a lease or PCP term. It affects monthly payments, as higher residual values typically mean lower monthly payments.

18. Gap Insurance

Gap insurance covers the “gap” between your car’s insurance payout and the remaining loan balance if your car is written off or stolen. It’s optional but can offer added security, especially if you have a large loan balance.

Final Thoughts

Getting familiar with these common UK car dealership terms can help make the car-buying process a lot smoother. Understanding terms like PCP, deposit contributions, and APR means you’ll be able to ask the right questions, navigate financing options confidently, and make an informed decision. Whether it’s your first car or a long-awaited upgrade, knowing the lingo can help you drive away happy with your choice!

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