Car Finance Bridgend, South Wales

All of us have a credit rating or credit score. This rating is based on a combination of data from our current and previous circumstances. This scoring system is used by finance companies when you apply for finance. They will source this information from various credit bureaus such as Exquifax, Trans Union and Experian. Once they analyse this data and get an understanding of the risk in lending the money, they will decide the rate of interest. A better credit score will usually benefit from a lower rate, whilst a bad credit score will attract a higher rate of interest.

By law, the APR must be displayed on relevant documentation and presented to customers in order for them to make an informed decision. The APR is the annual cost of a finance agreement over and above the amount you have borrowed. The APR will not only include the interest rate (or flat rate), but also include any other fees, such as administration fees, documentation fees, annual admin fees and option to purchase fees.

Many confuse APR and the Flat Rate. Whilst APR calculates all of the interest plus any additional fees, the Flat Rate is the agreed interest rate charged on the finance agreement and charge annually. To avoid any doubt, the flat interest rate does not include other charges like administration fees or any option to purchase fees. Some dealers will quote a monthly or annual flat rate, but you should always ask for the APR, and ask what additional fees are included in the agreement before making a decision.

If you are budget conscious, you should always consider the benefits of a fixed rate agreement. This means that no matter what happens to the cost of borrowing during your agreement, the monthly payments will not alter. Most motor finance products work on fixed rates.

This is not a term used very often when financing a car or van, but it is worth knowing what it means. A Variable Rate means that the interest rate can go up or down depending on the Bank of England’s base interest rate. For those of us who are budget conscious, it is worth noting that changes to the cost of borrowing could push you over your monthly budget and make the repayments unaffordable. This type of finance agreement is more common in the mortgage or secured loan markets.

A Credit Agreement is a legally binding contract between the customer and the finance company. With the continued development of technology, there is more than one way to enter into a finance agreement. You can sign in a showroom on printed documents, or sign electronically at home or work. The Credit Agreement must include details of the loan amount, term, rates of interest, other charges and your rights and responsibilities for the duration of the agreement. You will always receive a copy of the agreement you have entered into including the terms and conditions. If you ever have any questions regarding your agreement, the contact information for the lender will be on the agreement.

Hire Purchase or HP as it is commonly known is a popular for both car and van finance. Depending on the vehicle and the VAT implications, the initial deposit may vary. If a vehicle is VAT qualifying then you will most likely be asked to pay the VAT of the vehicle upfront. When taking out a HP agreement, you will pay an initial deposit, then a fixed monthly payment over a set number of months. Although you become the registered keeper of the vehicle, you don’t actually own the vehicle until you have made the final repayment. During the time when you still have payments remaining, the finance company owns the vehicle.

Personal Contract Purchase or PCP as it is commonly known is also very popular with those who wish to purchase a new or used car, but wish to remain within a monthly budget. PCP is a form of hire purchase which includes a voluntary balloon payment at the end of the term. The final amount represents the future residual value of the car, based on the age of the vehicle at the end of the agreement and the forecast mileage that you expect to do. Many agreements will include excess mileage charges if you exceed the agreed forecast mileage. This information will be clearly stated in the PCP finance agreement so make sure you read it thoroughly before you sign.

Finance Lease is an agreement used by businesses to acquire a car or commercial vehicle. The customer is able to put down their preferred deposit and spread the monthly repayments over a set term, such as 3, 4 or 5 years. There will often be a balloon payment at the end of the agreement which represents the future residual value of the vehicle, based on the age of the vehicle at the end of the agreement and the forecast mileage. If the vehicle is VAT qualifying, all of the payments including the deposit, balloon and monthly repayments will be VAT applicable or plus VAT. The vehicle is owned by the finance company for the duration of the agreement and until the final balloon payment plus any additional fees are settled with the finance company.

Contract Hire is another finance product which is popular with those who like to change their vehicle every few years without the worry of disposing of their existing vehicle. The finance agreement consists of a deposit, followed by fixed monthly repayments for the agreed term. At the end of the agreement the vehicle is handed back to the finance company. The vehicle is legally owned by the finance company for the entire term, with no option to purchase at the end of the agreement. Contract Hire agreements include a lot of information about the condition the vehicle must be in when handed back to the finance company. If there is damage to the vehicle outside of the ‘Fair Wear and Tear Policy’ then you can expect to receive a charge from the finance company. Contract Hire agreements will include excess mileage charges if you exceed the agreed forecast mileage. This information will be clearly stated in the PCP finance agreement so make sure you read it thoroughly before you sign.

A Balloon Payment or Guaranteed Minimum Future Value is a sum that is deducted from the vehicle price and deferred to the end of the finance agreement, primarily in a Personal Contract Purchase, Hire Purchase with Balloon and Finance Lease with Balloon. By adding the Balloon Payment to the end of the agreement, you reduce your monthly repayments to often make them more affordable. It completes the finance agreement and, in many cases, allows you to take ownership of the vehicle once the Balloon Payment has been paid to the lender. Be sure to check which type of agreement best serves your needs.

Refinancing is a term used when you wish to keep your existing vehicle but enter into a new agreement. You can often spread the payments over a fixed term which exceeds the current length of your existing finance agreement. Depending on how far you are into your existing agreement, you will most likely be refinancing a smaller amount, therefore reducing your monthly repayments. This is all subject to the lender and the available rates based on your current personal circumstances. All of which is worth checking prior to entering into a new finance agreement.

An additional fee at the end of some finance agreements which, once paid, transfers ownership of the vehicle from the finance company to you. An option to purchase fee is commonly found at the end of Hire Purchase and Personal Contract Purchase agreements.

An additional fee at the start of some finance agreements which is paid in addition to the deposit. Only some lenders charge this and the amount can range between different finance companies. It is always worth checking what this figure is before signing an agreement.

The Term is the phrase used to describe the length of time you agree to repay the amount of finance you have borrowed. This is usually between 2 and 5 years but some lenders can facilitate terms as long as 7 years.