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What is APR on car finance? Our guide to Annual Percentage Rate

The Annual Percentage Rate (APR) is a handy figure that will give you an idea of what you’ll be paying per year for a car finance loan, on top of the purchase amount of the car

Car finance

APR car financing

The Annual Percentage Rate (APR) helps us to work out the additional costs for a car finance loan and combines interest rates, admin charges, and the length of your term to produce an accurate insight into what the loan will cost.

Unlike standard interest rates, your APR includes the admin fees to give you an accurate idea of how much you’ll be paying over the course of your loan. The higher the APR, the more money you’ll need to pay.

This amount will help you compare car finance options to find the best deal for your circumstances, but the official number might differ based on your personal details, so use these figures as a guide.

How does APR work?

The APR on your car finance will include interest and any extra charges like admin fees. If the car finance is 0% APR, this means you’ll have no extra fees or interest to pay.

The main function of APR is for you to be able to compare loans, so it’s a handy figure to keep an eye out for.

What’s the difference between representative and personal APR for car financing?

It's important to know the difference between representative and personal APR.

Representative APR for car finance

When you’re looking at car finance deals, you’ll notice a figure called ‘representative APR’. All car finance lenders must show a representative APR in their advertising so applicants know what to expect when applying for the loan.

Representative APR will be the figure that the lender expects will apply to more than half of their applicants. It’s an estimate, and it’s likely your personal APR will differ.

Personal APR for car finance

Personal APR is a more accurate representation of what you can expect to pay. Instead of providing a rough figure, personal APR uses your credit score and personal details to put together a quote that’s especially for you.

This figure could differ from the representative APR shown in the advertisement, so bear that in mind when you apply.

What is a good APR for car finance?

Your car finance APR will depend on your own circumstances and take into account your credit history and personal details. Because of this, a ‘good’ APR will be different for everybody.

If you have a poor credit history, you’ll usually be required to pay higher levels of interest. Because of this, your overall APR will also be higher. If you have an excellent credit report, then you can expect your APR to be lower.

If you want to check your credit score before looking for a car finance loan, there are online services that'll give you an insight into your credit history for free. This way, you know what to expect before applying.

How is APR calculated for car finance?

APR is calculated by combining the interest rate, extra fees, and length of the loan term. You'll find that your interest rate might be higher if you have poor credit history, whereas an excellent credit score can keep the interest lower.

Lenders will look at your deposit, the type of car you’re wanting to buy, the length of your loan, and your personal details and credit history. This is all the information it needs to create an accurate personal APR.

You can find online calculators that will help you estimate the APR for your car finance, or use our finance calculator to get a quote.

What is the difference between fixed and variable APR?

Fixed APR is just that – fixed! It will stay the same for the whole loan period, right up until you’ve paid it off.

Variable APR can change as the loan period goes on, so you might find that it will increase or decrease.

What is the difference between an interest rate and the APR on car finance?

APR includes all extra fees and interest on your car loan, whereas the interest rate shows only that.

Your interest will be combined with the cost of your loan fees to work out your APR. The APR will then be added on top of the loan amount to give you the full repayment amount.

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