APR stands for Annual Percentage Rate of charge. Essentially it’s a figure that shows you the annual cost of borrowing – it’s what you’ll pay on top of the money you borrow – whether it’s a bank loan, a PCP or HP agreement.
The higher the APR figure, the more the loan will cost you. This is sometimes known as the ‘premium’.
You may also see other fees when it comes to taking out your motorcycle finance agreement, from Arrangement Fees, Acceptance Fees and an Option to Purchase Fee. Typically these fees are included with the loan amount.
For example if your loan is for £10,000 and your Arrangement Fee is £30, you’ll be paying interest on £10,030.
If your APR is 10% and you’re paying off the whole loan, then your monthly payments are calculated so that you pay 10% of the amount you’ve borrowed in interest, plus any capital repayment (paying down the loan).
Sometimes you’ll see a manufacturer offering 0% finance. These offers are usually on PCP loans. A 0% APR PCP deal is attractive, as you won’t pay back any more than the cash price of the bike. However, if you were to pay cash for the bike, it’s likely that you’d be able to negotiate a better deal and get a discount from the asking price.
A low APR might look like a better deal but it won’t always work out to be cheaper. The A in APR stands for Annual, so even if a PCP agreement boasts a low APR, if the deal is for a longer duration it may be that you end up paying more.
When it comes to PCP finance, there’s one figure you should really keep an eye on – TAP.
TAP stands for Total Amount Payable and even though the APR is a good guide as to whether or not you’re getting a good rate or someone’s trying to stiff you, the TAP shows you exactly what you’ll have to pay back.
Let’s say you buy a £10,000 motorcycle that isn’t on 0% APR, there will be interest attached. The TAP shows you what you’ll end up paying back should you purchase the bike at the end of the agreement.
Even if you don’t intend to buy the bike at the end of your PCP term, the TAP still gives you a good way of comparing apples with apples.
If you can find the bike at a fixed price but different dealers are offering different deposits, APRs and contract lengths, the TAP is the one figure you can use to see the real cost.
A deposit contribution is essentially a discount, however you would only be able to get that ‘contribution’ if you took out the finance agreement.
In these instances, you need to take the APR with a pinch of salt. A bike may have a slightly higher APR but the deposit contribution may significantly decrease the amount you have to borrow to finance the bike and so the loan may work out cheaper.
Again, always look at the TAP for a true figure.