Some Finance Terms Explained

There are several main pieces of finance terminology that are essential to grasp before getting underway with a purchase. A few of which, are defined below.

APR:
This is purely the Annual Percentage Rate. It is based on 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, taking into account administrations and other fees. The nominal rate of interest for a specified period is usually one year.

AER:
This is the Annual Equivalent Rate - the interest you would earn in a year if you left all your monthly interest in your savings account.

Flat rate:
This is the monthly interest rate charged. Watch out for flat rates being quoted instead of APRs: the flat rate is not the true cost of the loan and it's usually around half the APR so it sounds cheaper.This means you are charged the interest on the original amount you borrow, no matter how much you have paid off. So even in the last year you're still paying interest on the original amount, despite the fact you've paid most of it off.

Fixed rate:
This is the interest rate charged, and/or the monthly payments are fixed throughout the length of the agreement. The interest rate is fixed for a set period, the rate doesn't change during that period. So a fixed rate of 5% for two years means this is exactly what you will pay for two years irrelevant of any changes to UK interest rates or anything else. The advantage of a fixed rate is you know exactly what you'll pay during the entirety.

Secured loan:
This is where unfortunately the finance company can repossess the item being financed such as your house or bike if you fail to pay the money owing. They are a loan only available to property owners (or mortgage holders), where the lender can forcibly sell your house to get its money back if you can't repay. The 'secured' bit means the lender gets 'security' not you, as if there are repayment problems, it can lead to repossession of the secured collateral.

Unsecured loan:
This is when the finance company has no security against the loan. It is a loan for which you don't have to put up an asset, such as your home, as security that the loan will be repaid. Regular payments made against an agreement. Always consider the interest rates, length of which it will take to "pay off "the agreement. These will hold some collateral for you and are less risky for the finance provider. It also means that the car purchased will be yours and not the financiers from the offset.

PCP:
Personal Contract Purchase. This is a personal finance scheme which 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' to be paid before the car is yours. It also has a Residual value (or guaranteed minimum future value) Anticipated value of the car at the end of the finance agreement.

Hire Purchase:
With hire purchase, the finance provider owns the car, and the customer buys it over the agreed period. With HP, a deposit may be needed, and the finance is generally secured on the car itself. Again, there may be an additional fee to be paid before the car is yours, and it does mean that you don't own the car until you have covered at least the majority of the finance credit. However, it does also give you the option of giving the vehicle back or "trading it in" after half way through.

Creditor:
This is simply a person or company to whom the money is owed .

Debtor:
This is the person that owes the money.

Interest rate:
This is easier to give an example for. If you borrow money at a 5% interest rate for a year, it will cost you 5% of the amount borrowed to do so.This will need to be repaid along with the original amount you borrowed. Interest rates are usually quoted annually. So one year at 10% would cost you £100 (ten percent of £1,000). Therefore over six months you'd pay about a half of that, approximately £50.

Base rate:
This is the standard UK interest rate set by the Monetary Policy Committee of the Bank of England. They meet each month to decide whether the rate should move or stay the same, in order to keep inflation (Consumer Prices Index) as near to 2% as possible. When they change their rates many mortgages and savings accounts change with it; though unless they're tracker rates they don't have to.

Repossession:
This is when the lender, takes back the property from a customer who is behind with payments.

Tracker loans:
These loans track movements in the Bank of England base rate so that you benefit quickly from a fall in interest rates.

Direct debit:
These payments are when you're mostly in control, but have extra protection. This is where you let companies take money from your account, and while often it's just for a fixed payment, but do keep an eye on them because the amounts could change, such as an instruction to 'pay my credit card off in full'. As Direct Debit is a specific scheme, with strict rules that companies must sign up to, you're protected by the Direct Debit Guarantee. This means you've a right to contact your bank to cancel at any time you like, and if there's an error you get a full refund from the bank, rather than the company itself.

Standing order:
These payments are governed only by you. You have the control. This is an instruction from you to your bank to pay a fixed amount out at a regular period. It's usually free and you can cancel it whenever you like.

Recurring Payments:
These payments are dangerous, you have no control. This is a regular payment from credit or debit cards rather than bank accounts, where you let companies take money from the card, but worryingly, you can't cancel it, you need to ask the company to do it for you.

Assets:
Anything owned by someone having a monetary value; eg, 'fixed' assets like buildings, plant and machinery, vehicles (these are not assets if rented and not owned) and 'current' assets, such as stock, debtors and cash.

Depreciation:
This is the reduction in value of a fixed asset through use and obsolescence.

Before You borrow Money Always Consider Your Circumstances:
As with everything there are more options to hand, so you must consider your circumstances, affordability and practicality of financing your vehicle. If you are still in a quandary, why not read our other finance related articles for tips on the finance industry for further information, for here at HSL Vehicle Finance we cover car loans for prestige cars, asset finance, motorcycle and much more so why not let us give you a great deal on your next vehicle loan. To view what we can offer you, visit http://www.hslfinance.co.uk/pages/hire_purchase.lasso

Apply Online
HSL use a range of lenders to help secure the finance you need. When we get you accepted, we'll liaise directly with the dealer and arrange for you to visit them to sign the documentation. Within a few days we'll be able to pay the dealer and you will be able to drive away in your new car. CLICK HERE TO APPLY ONLINE

To qualify for our help if you have been Refused Car Finance elsewhere you will need to be:

• at least 18 years old
• Have Permanent Employed or be Self Employed
• A full UK resident with your main residency being in Britain

You will also need to have the following:

• A full UK drivers license
• Proof of income
• Proof of address

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