What Is APR and Why Does It
Matter in Car Finance?
APR (Annual Percentage Rate) shows you what it costs to borrow money for a year. It includes the interest
rate and any extra fees. Using APR helps you compare car finance options from different
lenders. A lower APR means your loan will cost less.
Many car finance ads will show a representative APR. This is the rate that at least 51% of people who get
accepted will have. Your real APR could be up or down. It depends on your credit score, your money coming
in, and your personal circumstances.
What Is Considered a Good APR in 2025?
A good APR can be different for each person because it depends on the market and your credit. In 2025, this
is what is seen as normal:
Credit Score Range
Typical APR Range
Excellent (800+)
4.9% – 6.9%
Good (700–799)
7.0% – 9.9%
Fair (600–699)
10.0% – 14.9%
Bad (below 600)
15.0% – 29.9%
Use a car loan calculator or a car finance calculator to find out your monthly repayments and see the total
cost based on APR. This tool can help you know what you will pay each month for your car loan. A calculator
makes it easy to plan and manage your car finance. Just enter the numbers to get the monthly repayments and
total loan cost. With a loan calculator, you can work out what fits your budget before you go ahead.
PCP vs HP: How Does APR Affect Each
Option?
PCP (Personal Contract Purchase)
The APR is often lower because there is a final payment at the end.
Has mileage limits and rules for returning the car.
Good for people who want a new car every few years.
HP (Hire Purchase)
You will have higher monthly payments and there is no big payment at the end.
The car is yours when you reach the end of the contract.
This is a more steady choice for people who want to own the car.
Looking at the APR finance for both options helps you see which one fits your budget better
and matches what you want later on. Comparing the APR can give you a clear idea of what you will pay over
time. This way, you can feel good about your choice for now and in the future.
How to Get the Lowest APR on Car
Finance
To get a better APR:
Work on your credit history and pay off any old debts.
Put down a bigger deposit to lower the loan amount.
Pick a shorter loan term, as long as you can handle the payments.
Apply with lenders that have soft search tools or use their apps.
Try an online loan calculator or car loan calculator. You can change the
deposit, the time to pay back, and try different APR numbers with the calculator. This will help you see
what fits your budget when getting a car loan.
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No matter which place you pick, make sure you ask for a personalised quote. If you can, try to apply
on a weekday. Try not to apply during bank holidays. This can help your request go through
faster.
Real Example of APR Impact on Car
Finance
Detail
Deal A (Low APR)
Deal B (High APR)
Car Price
£10,000
£10,000
Term (months)
48
48
APR
5.9%
14.9%
Monthly Payment
£235
£275
Total Repayable
£11,280
£13,200
Total Interest
£1,280
£3,200
Even when there is a 9% change in APR, you could end up paying almost £2,000 more in interest. This is why
you need to compare offers using a loan calculator. A calculator helps you see what you could pay in the
end. By checking the APR with a loan calculator, you get a good idea of what the loan will cost you over
time.
Can You Pay Off a Car Loan Early?
Yes, you can pay off some car finance agreements early. You may have to pay an early repayment charge. Check
the terms of the finance agreement to see what rules apply. You can also talk to your lender for help. Some
lenders will not charge this fee at all.
What If You’re a First-Time
Buyer or Have Bad Credit?
If you live in the UK and have a current account, you might still get what you need. You should look for
lenders that help new UK resident applicants or give you more flexible repayments. There are also soft
search apps that let you check your chances before you apply.
If you are having a hard time with payments or dealing with debt, it is good to get free debt advice before
getting into a car finance deal. This can help you know
what is best for your money. Taking time to ask for help may stop you from making things worse. It is always
better to get the right advice before you sign up for any car finance plan.
Correct as of 11 June 2025
FAQs About Low APR Car Finance
What’s the
difference between APR and interest rate?
APR shows the interest rate and any extra fees. It helps you see the full cost of borrowing
money.
Can I get a low APR with bad
credit?
It’s not very likely. But if you work on your credit score or apply with someone else as a
co-signer, it can help you get a lower rate.
Is a personal
loan cheaper than dealership finance?
Sometimes, it is good to look at both options. You can use a car finance calculator to help you
compare the two. You can also ask for a personalised quote to get more details. This will help
you know which car finance choice works well for you.
How fast can I
get approved for low APR finance?
Some lenders give you approval in just a couple of hours. This happens mostly when you apply
online or by using an app.
Should I
choose PCP or HP if I want low monthly payments?
PCP can help you get lower monthly repayments. Your repayments each month will be less than with
some other options. But you need to think about the final payment you will have to make at the
end. So, while you pay less each month, be ready for the final payment later on.
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