If you’ve been looking at car finance deals lately, you’ve probably seen a lot of jargon out there which has made things a little unclear. And if you’re buying your first car on finance, this can make things a little bit daunting. You want to understand things clearly, and when you speak to a car dealer, they speak too fast and completely disregard a lot of your important questions. Throwing caution to the wind, repeatedly telling you ‘it’s nothing you need to worry about’. While it might be true, and you have got nothing to worry about – you still need to understand.
In this article, we’ll go through three of the most common bits of jargon used in detail, so that you can enter into a finance deal without any questions or worries. According to recent research we commissioned, 58 percent of car buyers find car finance terms like HP, APR, and PCP really confusing, so you’re not alone in your concerns. We’ll make sure you’re in complete control, and you won’t have any nasty surprises later down the line.
What does HP mean?
HP stands for the term Hire Purchase. In short, this means that you’re paying an amount off of your finance deal each month in order to own the car completely. Now, it’s important to pay attention to that last bit – to own the car outright. Why? Well, you will find out later, but in short, other financial plans don’t always allow you to own the car entirely.
When would you choose an HP financial agreement?
If you’re wondering what the best financial agreement is for you and your car, then let us explain why you would choose a hire purchase agreement. If you don’t drive your car a lot, there are few miles on it, you travel to work for 15 minutes or less, and perhaps do long journeys a few times a year, then HP might be for you. . If you plan on buying a car with enough gadgets to make you feel like it has everything you want for a long time (for example, electric windows, air con, heated seats, Apple CarPlay and maybe even voice activated navigation), if the car has everything you need, and your travel won’t create a large amount of wear and tear – a hire purchase could be ideal for you.
This is because you will own the car outright at the end of your finance agreement. At this time, the car will still be in good condition for what you need, it will have all the gadgets you want and the upkeep of it will be minimal.
What happens if you can’t afford a HP agreement?
Due to the nature of a hire purchase agreement, you will end up paying more on your monthly bills compared to other financial agreements, such as PCP (we’ll get onto this later). So, if you don’t have a lot of monthly income, you need to carefully consider an HP plan. It may suit your lifestyle and use of the car, but it may not be affordable.
What does PCP mean?
PCP means Personal Contract Purchase. Largely, the difference between this and an HP agreement is that you won’t own your car at the end of your agreement. But why would you buy a car on finance if you’re not going to own it outright? The answer lies in the usage of the vehicle.
When would you choose a PCP agreement?
If you are someone who uses your car a lot, perhaps you drive over 20,000 miles a year for work, or make regular trips, then PCP might be for you. After three or four years, your car will have been through a lot of wear and tear. You might want it for another year, but soon enough the upkeep of the vehicle will not be worth it and you’ll find yourself seeking another car.
If you buy a car with a PCP, you hand back the car after several years and get a new one, negating the cycle of paying a car off, only to get another on finance. It’s for this reason that a PCP comes with a lower monthly payment. You don’t own the car, so you don’t pay for the whole vehicle. Although there is often the option to purchase with a balloon payment at the end of your agreement – should your circumstances change.
A balloon payment is used for when you find yourself at the end of a PCP agreement and you still wish to own the car. You can pay the requested amount outright, or get a loan from the bank in order to pay it.
What is APR?
Simply put, it’s your interest. Your car may be costing you £20,000, but your APR (annual percentage rate) means that you will end up paying more than that for the car. How high your APR is determines how much interest you will pay, and therefore the total cost of your vehicle.
Looking for a new car or car finance?
If you’re looking for car finance deals or even car finance with no deposit, contact the ChooseMyCar team. As car finance specialists, we understand that it’s not always possible to have the perfect credit score, whether you’ve not taken out credit before, or have experienced credit problems in the past. Bad credit for car finance doesn’t have to mean you can’t buy a car.
