AA Loans
Finance terms explained
APR – annual percentage rate. A standard method of calculating how much the loan will cost you over the full period of the loan. The APR reflects the total charge for credit and is different to the flat rate.
Creditcare An AA protection scheme that can cover your monthly repayments in the event of unexpected problems that can affect your ability to keep up your loan repayments.
Fixed rate The interest rate charged and/or the monthly payments are fixed throughout the length of the agreement.
Flat rate The monthly interest rate charged. Watch out for flat rates being quoted instead of APRs. The flat rate does not reflect the true cost of the loan and it's usually around half the APR, so it sounds cheaper.
HP – hire purchase. With hire purchase, the finance provider owns the car, and you buy it over an agreed period. With HP, a deposit may be needed, and the finance is generally secured on the car itself. Again, you may need to pay an additional fee before the car is yours.
PCP – personal contract purchase. This is a personal finance scheme that defers part of the payment for the car until the end of the loan, when the car is usually traded in. A deposit is usually required up front, plus a final 'balloon' payment, if you wish to own the car at the end of the finance agreement. There are also often additional fees, such as an 'option-to-purchase fee', which should be paid before the car is yours.
Residual value This is also known as the 'guaranteed minimum future value'. Anticipated value of the car at the end of the finance agreement. Only applicable to PCPs. (Please see above.)
Secured loan The finance company can repossess the item being financed, such as your house or car, if you fail to pay the money owing.
Unsecured loan The finance company has no security against the loan.