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Dec 05

Commonly Misunderstood Car Finance Terms

Posted by:AutoMoney

With more and more Britons buying cars on finance than ever before, more and more confusing terminology and terms come to light!

In a recent study carried out by BMW Group Financial Services of over 1,000 car owners, 28% of owners admitted to not understanding ANY car finance technical talk!

Here’s a few of the most commonly used terms:

GAP Insurance

This insurance is designed to cover the shortfall if your car is written off in an accident, whilst it is still under a finance agreement. For example, if the total car finance was for £5,000 and your insurance would only cover the value of £3,000 for the car once written off, your GAP Insurance should cover the difference of £2,000 which is still payable to the finance company.  If you decide not to have the GAP Insurance, you are liable for the difference between what your insurance will pay out and the outstanding amount on the finance agreement.

Personal Contract Hire (PCH)

This is a means of financing a car, which consists of one upfront payment and then monthly repayments which cover the cost of hiring the vehicle. Normally these agreements are on a brand new car, but as it is a hire agreement, this means that the car is never owned by the person on the agreement. Once the term of the agreement is completed, the car is returned to the dealer. In some cases, the customer can opt to purchase the car at the end of the agreement by making an additional one-off payment.

Deposit Contribution

A deposit towards the cost of the car, which is covered by the dealer. This is an incentive which is offered to get people to take out finance. Normally the amount offered is not enough to cover the full deposit, so the customer still will need to pay some part of the deposit.

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350.5%APR Representative
Representative example: Loan amount £1000. Duration 18 months. Repayable by 16 monthly repayments of £170.42 and one of £198.42 (includes Bill of Sale registration fee of £28) commencing two months from the date of the loan. Total amount repayable £2925.14. Rate of interest 187% per annum fixed. Representative 350.5%APR. LOANS ARE SECURED ON YOUR CAR. The vehicle may be repossessed if you do not keep up the repayments.