The Bald Guy's Insider Car Finance Guide

Flat Interest Rates. If the three little letters A, P and R don't follow the rate… danger! The APR interest rate, that banks use, means the rate is charged on any outstanding debt.

For example: Borrow £5,000 over 5 years and by the last year you only pay interest on the amount remaining, say £1,000. At 6% APR the total interest is £800. With a flat rate the interest is charged on the original amount borrowed, no matter what's been repaid, so in the last year you still pay interest on the whole £5,000. With a 6% flat rate, the total interest is £1,500.

Hence 6% flat sounds cheap but is roughly equivalent to a costly 12% APR, so if in doubt ask for the APR rate. (Every quote we provide will always include the APR).

Watch for PPI. Payment Protection Insurance costs aren't included in the interest rate, and many cheap loans are profitable due to their expensive insurance options, again always compare based on total costs.

£53 a week, cheap innit? You pay monthly, so why do they quote weekly? Multiply the weekly by 4.33 for the monthly payment (ie £53 becomes a whopping £230/month). Worse still, the repayments are sometimes quoted on extended borrowing periods; £53/week for seven years means a massive £19,300 total cost.

Jargon Buster


0% Finance offers - a finance agreement with no interest charges. If you take this finance option on a £10,000 car, you pay back £10,000. Can be a great deal if you see one. But usually you will pay an inflated price for the car in the first place. They have to make a profit somewhere, so check the total amount you repay.

APR (Annual Percentage Rate) - the real cost of borrowing. The approved Standard method of 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. (see above). The lower the APR, the cheaper the loan.

Balloon payment - the large payment at the end of a PCP. Also sometimes referred to as the Guaranteed Minimum Future Value (GMFV), or Guaranteed Future Value (GFV). Not all dealers quote a Guaranteed Value. So always check so you don't have the risk of negative equity at the end of your contract.

Cost to change - the bottom line of what it will costs you to change your vehicle. It is the difference between the selling price of your car, and the price of a replacement car. Some dealers will inflate their part exchange offer, but will also charge more for the car you are buying. Always check the Cost to Change to obtain a true comparison of different deals.

Depreciation - the value that your car loses over a period of time. Many people obsess with worrying about fuel costs and insurance. Whilst they are important, the most expensive part of car ownership is actually depreciation. Whatever you car loses in value comes straight out of your pocket. Because depreciation has been increasing in recent years, more and more buyers look to buy their cars on PCP or Contract Hire. The monthly payments effectively include, and therefore limit, the money you loose in depreciation. This is the most expensive part of car ownership, not fuel costs, or insurance as many people

Equity - the difference between the value of the car and what you owe on it.

Flat rate - 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. (The flat rate also does not include extra charges such as document fees. The APR includes all charges)

Negative equity - when your car is worth less than your outstanding finance. Our aim is to ensure your deal is structured to avoid negative equity at the end of your contract. PCP and Contract Hire is the best way to guarantee you won't have Negative Equity.

Residual value - the value of your used car taking into account depreciation, condition and mileage.

Trade value - what your car is worth in the trade. This will be approx 10% lower than the retail value of your car as the trade has to allow for mark up on vehicles they sell.