It doesn’t matter what kind of car you’re looking to purchase on finance – brand new or used, the annual percentage rate (APR) of a car is one of the most important things to consider.

The APR on car finance represents the total cost of borrowing per year. That makes it a useful metric to compare different car finance agreements for affordability. 

Still confused? My Car Credit likes to make things as simple as possible when it comes to car finance. Consider this your guide to all things APR – we’ll help you understand what makes a good APR for car finance in the UK and how to achieve it.​

What does APR mean in car finance?

The annual percentage rate (APR) is the total cost of borrowing for car finance per year. It’s inclusive of interest and lender fees, and is expressed as an annual percentage. The lower the APR, the less you’ll pay over the lifetime of a car finance agreement.

APR differs from the interest rate of car finance. The interest rate on a car finance agreement will be included in the APR as well as other lender fees and charges. That’s why the APR reflects the total cost of borrowing.

APR is one of the best ways of comparing car finance deals. If you’re looking for the most affordable agreements for your circumstances, you can use the advertised APRs of different lenders as a metric to compare different deals on a like-for-like basis. The higher the rate, the more you’ll pay back over the term of the agreement.

How APR works and an example

Lenders calculate APR by taking the total loan amount, adding any additional fees (such as processing charges), calculating the total interest payable over the loan term and dividing that total sum by the loan amount. The result will be expressed as a percentage, which represents the APR.

Remember, the lower the APR, the lower the overall loan cost. Alternatively, higher APRs mean you’ll pay more over the loan term.

Here’s an example of APR.

If you’re looking for a £10,000 loan over 5 years with a 6% APR, you can expect to pay approximately:

Monthly repayments: £193.33

Total repayment: £11,599.68

Total cost of borrowing: £1,599.68

Alternatively, if you’re borrowing the same amount over the same time with a 12% APR, you can expect to pay approximately:

Monthly repayments: £222.44

Total repayment: £13,346.67

Total cost of borrowing: £3,346.67

Remember, these figures are approximate. However, they’re a clear indication of how a lower APR can significantly reduce your overall payments.

Differences between representative APR and personal APR

A representative APR is the rate advertised by lenders that’s applicable to at least 51% of successful applicants. 

In essence, it means that nearly half of customers will be given a higher rate than the representative APR.

An exact or personal APR is the rate tailored to an individual’s financial circumstances. These include credit score, loan term and the lender’s own criteria. The healthier your credit score, the lower your personal APR.

What is considered a good APR for car finance in the UK?

APR varies between lenders, but a good APR for car finance in the UK is around 10.9% for a borrower with an excellent credit score.

My Car Credit offers rates from 9.9% APR and a representative rate of 10.9%. You can establish what kind of rate you might benefit from by using our car finance calculator.

Factors that influence an APR include a lender’s personal credit score, loan terms, loan amounts, type of finance, and lenders themselves.

A ‘good’ APR will therefore depend on your personal circumstances.

What’s an average APR for a first-time car buyer?

First-time car buyers often have limited credit history, which can mean they face higher APRs. 

Generally, APR rates for first-time buyers range based on varying credit scores from 9% to 20%.

You can check our tips below to learn how to maximise your chances of securing a good APR.

How new and used cars affect APR

New cars often qualify for lower APRs. This is because of higher residual values, reduced lender risk and occasional manufacturer incentives.

Alternatively, used cars typically come with slightly higher APRs. This higher rate reflects lender concerns over depreciation and higher risk.

Factors that influence APR for car finance

Credit score

Your personal credit score can have a significant impact on the APR you’re offered, as lenders use it to assess your credibility as a borrower. Higher credit scores benefit from lower APR, and vice versa.

Loan amount

Generally, larger loans come with lower APRs – but exceptions do apply depending on the lender.

Loan term

Shorter loans generally have lower APRs. Longer terms increase risk for lenders and therefore have higher APRs.

Deposit amount

A larger deposit can reduce your APR – so consider a large down payment.

Lender practices 

Different lenders assess and offer different rates, so it’s worth shopping around before committing to a deal.

How to get a good APR for car finance

The APR of car finance must be disclosed prior to the signing of any paperwork.

As such, comparing different lenders’ APRs is a good way of securing the best possible deal for your circumstances. 

There are also steps you can take to increase your likelihood of securing a competitive APR:

Check your credit score

The higher your credit score, the more likely you are to benefit from a lower APR. There are plenty of ways to improve your credit score, including registering to vote, paying your bills on time and avoiding too many simultaneous hard credit checks.

Compare lenders

Different lenders offer different rates, and you may even be able to negotiate to lower the APR. 

With a broker like My Car Credit on your side, you can benefit from the expertise and knowledge of our team to find the best APR for your circumstances. Our large panel of lenders means we may be able to reduce APR compared to other car finance companies. Use our car finance calculator to establish the kind of APR you could benefit from.

Adjust loan terms

Shorter repayment terms will have lower APRs (although you will end up paying more on your monthly repayments). You can help to reduce these repayments with a higher initial deposit.

Choose the right agreement for you

The kind of car finance you choose can impact your APR. For example, PCP finance generally has lower APRs than HP finance.

Unlocking competitive APRs with My Car Credit

At My Car Credit, we are committed to helping customers find the best rates for their personal circumstances. 

As part of the UK’s largest motor finance broker, we’ve established relationships with a wide panel of trusted lenders nationwide. This improves your chances of being accepted for car finance at an APR rate you’re happy with. We may even be able to secure you a lower APR than you’ve been quoted elsewhere.

We can also help drivers with poor credit scores to secure car finance.

Use our form and apply now to get a no-obligation quote in minutes. Alternatively, get in contact with our friendly team to benefit from their professional advice.

FAQs about APR and car finance

Does a low APR guarantee the cheapest deal?

The lower the APR, the less you’ll pay in interest and other charges. Some car finance deals are advertised as 0% APR. You should investigate whether these rates are best for you, as you’ll face higher monthly repayments, and they can be difficult to secure.

What APR can I expect with bad credit?

Individuals with higher credit scores will benefit from better APRs. However, it’s more than possible to secure a rate that works for you even if your credit profile is less than healthy. My Car Credit offers poor credit car finance for individuals of all circumstances. 

Can I negotiate a lower APR on car finance?

It’s possible to negotiate a lower APR on car finance, but this will depend on the lender and their criteria. Having a team like My Car Credit on your side can help you find the right deal for your circumstances and may be able to help you find lower overall rates.

In this comprehensive guide, we’ll take a deep dive into APR, explain how it affects your car loan repayments, and provide handy tips on how to unlock the best deals.

Understanding car loan APR

APR stands for Annual Percentage Rate and reflects the total borrowing costs associated with the loan. It includes the interest rate you’ll pay on cash borrowed, as well as additional fees and charges imposed by the lender. The goal is to provide borrowers with a clear idea of the total cost of the loan, including fees. This transparency makes car loan APR one of the most important metrics to consider when crunching your numbers and calculating how much to borrow.

Is APR the same as interest rate?

While car loan APR does factor in interest charged on the cash amount borrowed, it also includes other fees and charges associated with the loan. This makes it a different and more comprehensive metric than a traditional cash interest rate.

Why is APR important?

Car loan APR is one of the best ways to compare loan offers quickly, easily and accurately from different lenders. As mentioned above, APR not only factors in the cash interest rate but includes additional fees and charges. It offers borrowers a glance at the total cost of the loan, expressed using an easy-to-interpret percentage rate. A low APR means you’ll pay less in interest and additional fees over the lifetime of the loan. A high APR means you’ll pay more.

What is a typical APR rate?

In the UK, a typical car loan APR rate offered by a reputable lender should sit at around 10.9% for an applicant with excellent credit. It’s important to understand that most reputable brokers and lenders use representative APR as an example. The actual percentage will vary depending on the applicant. We’ll cover representative APR in more detail below.

Fixed vs variable APR

Most auto loans in the UK come with fixed APR. This means the APR remains constant for the lifetime of the loan and monthly payments stay the same. For borrowers, this provides stability and makes it easy to budget and plan ahead. Car loans with variable APR are less common and can be difficult to manage.

Factors that can influence car loan APR

APR can vary significantly depending on the applicant. Here are a few factors that can influence what APR you’re eligible for:

Personal credit score

Your personal credit score can have a big impact on what car loan APR you are offered. Lenders use your score to assess your credibility as a borrower and calculate risk. Borrowers with high credit scores are generally rewarded with lower APR, and vice versa.

Preferred loan term

The total length of your car loan can affect your APR. Lenders typically offer lower APR for shorter loan terms. Longer terms can result in higher overall APR, though monthly payments are lower which appeals to many borrowers.

Loan amount

The total amount borrowed is another factor that can influence APR. To lower your car loan APR, consider putting together as much cash as possible for your down payment.

What is representative APR?

When researching car loans, you’ll see the term representative APR used by brokers and lenders. This is the rate that at least 51% of customers will receive. Of course, some customers will enjoy lower rates while others will receive higher rates.

Representative APR takes this fluctuation into account and offers borrowers a general idea of what to expect. Ultimately, it’s a transparent way to compare rates offered by different brokers or lenders. The bottom line? Use representative APR as a guide, not a guarantee.

How do I find out the exact APR of a car loan?

You’ll need to continue with your application to get an exact car loan APR quote. Also called a ‘real’ or ‘personal’ rate, the figure is tailored to match your unique credit profile, financial history and personal circumstances.

Ideally, brokers should be able to calculate an exact car loan APR using a soft search. This type of search doesn’t leave a permanent mark on your financial history and won’t affect your credit score or future applications.

Tips for lowering your APR

APR can have a big impact on the total cost of your car loan. So, it makes sense to be proactive when it comes to lowering your APR. Here are some strategies to help you secure the best rates:

Boost your credit score

From paying off outstanding debts to registering on the electoral role, there are a few quick and easy ways to boost your credit score.

Increase your down payment

A larger down payment can reduce the amount you need to borrow, which can help bring down your car loan APR.

Choose a shorter repayment term

While it can be tempting to stretch out your loan for as long as possible to bring down your monthly payments, opting for a shorter repayment term typically reduces APR. In the long run, you’ll pay less.

Score the best APR with My Car Credit

One of the best ways to secure a good car loan APR is to work with an experienced broker. At My Car Credit, we specialise in helping Brits secure finance on all kinds of cars, from zippy Ford Fiestas to adventure-ready Range Rovers. Whatever your budget, financial history or credit score, we can help you unlock the best possible APR from trusted lenders.

Use our handy car finance calculator to get the ball rolling, or get in touch with a friendly member of the My Car Credit team today to find out more.