What is the Average Car Loan Interest Rate?

In this article, we’ll take a closer look at benchmark car loan interest rates in the UK, as well as exploring the difference between the Bank of England rate, cash interest rate and APR (annual percentage rate).

Britain’s relationship with car loans

Brits love to borrow. According to the Finance and Leasing Association (FLA), over 90% of all cars are bought on finance in the UK, and in the twelve months leading to May 2024, over two million cars were purchased on finance.

With so many benefits on the table, it’s no surprise auto finance is such a popular option in the UK.

What is the average car loan interest rate in the UK?

Different lenders will offer different interest rates for car loans – you can compare between the lenders My Car Credit works with to find the right rate for you.

Bank of England interest rate

The Bank of England interest rate – also known as the Bank Rate – affects the industry rates that lenders charge for different types of credit, including car finance.

It’s reviewed eight times a year to reflect the UK economy. As of February 2025, the Bank of England interest rate is 4.5%.

Most lenders take this base rate, then add to it based on a variety of factors. It’s rare to find any type of loan, whether it’s a home mortgage, cash loan or auto finance agreement, that uses the base interest rate stated by the Bank of England.

Cash interest rate

This is the interest rate the lender chooses to use on the principal loan amount. For example, if you borrow £10,000 at an interest rate of 6%, you’ll be paying an additional £600 in the first year. It describes the cost of borrowing the money itself and doesn’t include any fees or charges added by the lender. Using a car finance calculator is a quick and easy way to crunch the numbers.

Annual percentage rate (APR)

APR offers a more comprehensive view of the total cost of your loan. As well as the cash interest rate it also includes extra fees and charges. For example, if you’re offered a car loan with a cash interest rate of 7%, but the APR is 12%, you’ll be paying 5% in fees.

APR is designed to provide transparency to borrowers and make it as easy as possible to calculate the total cost of your loan. Comparing APRs offered by different lenders is one of the best ways to secure a good deal on car finance.

What is a good APR rate for a car?

APR varies significantly between lenders. That said, it must be disclosed prior to signing any paperwork, so you can shop around and compare these rates when you’re looking for car finance.  

Remember that there’s a difference between representative APR and exact APR.

In the UK, borrowers with excellent credit scores should aim for an APR of 10.9%. This is considered a good average car loan interest rate, allowing you to enjoy the benefits of auto finance without absorbing too many extra fees or charges.

That said, this rate will be determined by your individual circumstances, especially your credit score. The lower your credit score, the higher your APR is likely to be. There are other ways to reduce the APR on a car loan too, including applying with a guarantor and choosing a shorter repayment term.

If your credit score is less than ideal, don’t forget that My Car Credit helps with poor credit car finance.

Fixed vs variable interest rates: What’s the difference?

A fixed interest rate remains constant for the entire term of a loan, meaning your monthly payments stay the same. Most auto loans in the UK come with a fixed APR.

A variable interest rate means your monthly interest payments can change, so they’re less predictable.

Choose an auto loan with a fixed interest rate if you want to know how much you’ll pay each month and don’t want to be affected by fluctuating interest rates. Be aware that fixed rates tend to be a bit higher than variable interest rates.

A variable interest rate makes it easier to switch deals or providers early compared to a fixed interest rate. However, your payments will be less predictable, making it harder to budget.

Is a low APR always the best deal?

Low APR means you’ll pay lower average percentage rates compared to the rates on standard auto loans. It’s ideal for buyers with higher credit scores. 

However, always do your diligence and read the fine print before jumping for low APR auto finance. Sometimes these offers can come with hidden fees like a minimum deposit requirement, or even vehicle usage restrictions. 

You should also understand your total loan cost and ensure your lender is totally trustworthy before agreeing to a low APR deal.

If you have questions about whether a low APR deal is right for you, you can always contact our friendly team of Car Credit Specialists with your questions and concerns.

Get a great car loan deal with My Car Credit

Why settle for an average car loan interest rate when you could unlock an even better deal? 

At My Car Credit, we’re committed to helping Brits secure best-in-class APR, with a representative rate of 10.9% – though rates will vary depending on your unique circumstances.

Unsure what kind of APR you might benefit from? Fill out our online form to get a no-obligation quote in minutes and discover the kind of rates and terms you can secure with a car loan from My Car Credit.