Many car dealers offer Personal Contract Plans (PCPs ) as a way to pay for a car. PCPs can appear very attractive because they usually have low monthly repayments. You also have the convenience of being able to sort out your finance and pick your car in the same place. However, PCPs are very complex compared to other types of car finance and it’s important to understand all the terms and conditions before you sign up.
A PCP is a particular type of finance which is similar to a standard Hire Purchase (HP ) agreement. Many of the legal rules that apply to HP also apply to PCPs, for example the third rule and the half rule. However, the major difference is that you pay less of the amount owed during a PCP agreement than with HP, meaning you will still owe a considerable amount at the end of a PCP agreement. The latter is also among the least flexible forms of car finance, as repayments are fixed for the term of the agreement.
If you’re going in for any type of personal finance then APR will usually be mentioned. The Annual Percentage Rate is the interest charged for borrowing that represents the actual yearly cost of the loan expressed as a percentage.
An example being if you were to borrow €100 at a rate of 7 per cent APR over the course of one year, then you would pay around €7 interest on that loan – so you would borrow €100 and pay back €107. All credit lenders are legally obliged to tell you what their APR figure is before you sign any paperwork, but be aware that any charges pertaining to the loan (arrangement fees etc. ) are included in the amount you borrow, affecting the interest amounts.
