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What Does APR Stand For? Car Finance APR Explained!

Do you want to compare different car finance deals to know which one is the best for you? The simplest way to do that is to look at the APRs that various lenders offer. But what is an APR? It stands for annual percentage rate and it includes the interest, fees, and other charges to expect when financing a vehicle. Car finance APR explained thoroughly is easy to understand, and once you know more about it, you can compare car finance deals fast! 🔍

What is an Annual Percentage Rate?

APR in car finance is the percentage rate that indicates the cost of financing a car. It includes the interest applied on your loan, as well as other fees and charges. A higher APR means you’ll be paying more, so when you’re looking for a good car finance deal, search for ones with low APRs. Car finance companies calculate the annual percentage rate through a standard method, making it the best way you can compare different offers. 

However, there is one thing to remember when it comes to APRs — they don’t take into account deposit contribution discounts. If you get an offer for a deposit contribution on the car, the annual percentage rate will be higher compared to the premium you’ll be paying for the car finance deal. 

The reason for this is that the finance discount covers part of the interest applied. There are also instances where the deposit contribution itself is big enough, outweighing all or most of the interest. It’s possible to get the same car and the same finance agreement and not have a deposit contribution but still have identical APR figures. In reality, however, it will cost more. 

How Do I Get the Best Car Finance APR?

The annual percentage rate that will be applied to your car finance agreement depends greatly on your credit score. Car finance companies evaluate the borrower’s credit score to know the risk level in terms of lending out money. If you’re seen as a low-risk borrower, then you will most likely be offered a lower APR compared to another borrower with a poor credit score. 

To get the best APR for car finance, it’s important to improve your credit score first if you find that it’s on the lower end. Since lenders look at your score and your credit history, you’d want to make sure that you have a strong credit profile and that you’re financially stable. If you have any pending loans, missed payments, or other outstanding obligations to other financial institutions, it’s best to settle those first before applying for car finance. 

When you have an excellent credit score, you’ll have better chances of being offered low-APR car finance deals. If you’re looking for 0% APR offers or interest-free car finance, lenders usually only make these available to borrowers with high credit scores. Some ways to increase your score are registering on the electoral roll so your address will be updated, making sure you’re up-to-date with your outgoings and checking your credit report for any errors that may have affected your credit rating. 

Is 0% APR on Car Finance a Good Deal?

Brand new and used car finance deals with 0% APR mean there are no interest and other fees charged on your loan. You only have to make payments on the actual amount you borrowed. However, it’s important to read the fine print whenever you consider a zero APR car finance deal. 

Whilst it may not have interest and other fees, discounts and other incentives might not be available in addition. So, what happens is that the price of the car will be higher and you’ll be paying more for it than if you get a car finance deal with the usual APR applied. 

Not all zero-interest car finance deals are the best. There are cases where a high APR deal combined with a substantial deposit contribution is actually much cheaper. When you compare different car finance offers, remember to get like-for-like quotes so you’ll be able to see which ones provide the best value. 

APR on Brand New Car Finance

It’s typical for manufacturers to offer great deals on new cars. For example, you might get a car finance deal for as low as 1.9% to 2.9% APR, making the interest you pay really low. The catch here is that since you’re getting a brand new car, it will have a higher price tag compared to its used equivalent. So, if you’ll look at the big picture, you’ll still pay more every month for your repayments even with a low annual percentage rate charged on your loan. 

APR on Secondhand Car Finance

For used cars, it’s rare to find car finance deals that offer 0% APR. The few that are available would most likely have really high price tags so that the dealership or car finance company can earn their profit. Nonetheless, you’ll find many lenders offering competitive annual percentage rates. A quick online search will show you the top results instantly. 

When you do compare different car finance deals, make sure you look at their APRs and not just the interest rates. Some car finance companies may advertise a low interest rate but bear in mind that this doesn’t include other fees and charges that will be applied when you get car financing from them. 


Whether you want to get a Personal Contract Purchase or a Hire Purchase car finance deal, make sure that the quotes provide the total amount payable so you can compare them with other offers. With PCP car finance, details of the optional balloon payment that you have to pay to own the car should also be provided. 

Do bear in mind that when looking at the total amount payable, the deposit contributions are not usually taken into account. So, if a deposit contribution is available, the amount should be subtracted from the total amount payable. This way, you’ll be able to determine the amount you will pay overall when you make all your monthly payments. 

Hopefully now you feel more knowledgeable about APRs and what they mean, and how you can use them to get the best car finance deal available! 👍🚘

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