A Personal Loan is a form of unsecured loan. Money is lent to you without any guarantee or security, and you are free to spend it as you like.
In terms of buying a car, you use the money borrowed in the loan to purchase a car outright, unlike a secured loan like an HP or PCP where the finance company owns the car.
This means that if you stop making your monthly payments, the finance company cannot repossess your car (it’s yours, not theirs), but they can seriously damage your credit rating and even force you into bankruptcy.
PPI (Payment Protection Insurance)
A type of insurance designed to cover you in the event of you being unable to make your regular monthly payments.
PPI has been in the news regularly over the last few years due to banks and other financial institutions mis-selling the product, either by selling it to people who were not eligible to ever claim on the product, or including it in their payments without explaining it or actually asking the customer if they wanted it.
Payment Protection Insurance can be very difficult to claim on, and is not popular with car finance products.
PCH (Personal Contract Hire)
See Contract Hire; a lease or long-term rental agreement. It is essentially not very different to renting a car for a week.
You do not own the car; it remains the property of the finance company at all times. At the end of the agreement, the car goes back to the finance company, just like a rental car.
Personal Contract Hire is aimed at individuals rather than companies leasing the vehicle. Monthly payments may be quoted either excluding or including VAT, so you should check to make sure.
You should also read: Personal Contract Hire (PCH) explained.
PCP (Personal Contract Purchase)
May also be referred to as ‘Personal Contract Plan’. The most popular way for private individuals to finance a new or used car in the UK for personal use.
Most manufacturer finance companies will have their own name for their PCP offerings (eg – Volkswagen Solutions, BMW Select).
A PCP is a form of Hire Purchase, but instead of repaying the entire cost of the vehicle, you only repay the depreciation.
At the end of the agreement, you can either pay out the remainder (the Option to Purchase Fee or balloon) or give the car back to the finance company. You can also sell the vehicle, providing you pay out the Option to Purchase Fee before signing the logbook over to the new owner.
You should also read: The PCP (Personal Contract Purchase) explained.
Pre-Contract / Pre-Credit Contract Information
A summary of the main points of a finance agreement. Any seller of finance (usually the Business Manager at the dealership) is required to give you this document to read and understand before you are presented with the finance agreement itself (the contract) to sign.
You are entitled to take it away to read at your leisure, although most dealerships will do their best to gloss over this and get your signature on a contract as quickly as possible.
Don’t be pushed around. Read every document carefully before signing, because they are legally binding and it’s not easy to change your mind down the track.
You should also read: The Executivecondominium’s article on Buyer’s Remorse.