Finance terms explained

Guide to Motorcycle Finance

Finance terms explained:-

APR:
Annual Percentage Rate. A 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.

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.

Fixed rate:
The interest rate charged and/or the monthly payments are fixed throughout the length of the agreement.

Secured loan:
The finance company can repossess the item being financed such as your house or bike if you fail to pay the money owing.

Unsecured loan:
The finance company has no security against the loan.

PCP:
Personal Contract Purchase. 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 bike is yours.

Residual value (or guaranteed minimum future value) Anticipated value of the bike at the end of the finance agreement. Only applicable to PCPs.

Hire Purchase:
With hire purchase, the finance provider owns the bike, 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 bike is yours.