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What's a Common Car Finance Rate of Interest?

Car finance really is the most affordable way of buying a car. Instead of paying all your hard earned cash in one go, you’ll be able to spread out the cost of your dream car over a period of time, usually between one and six years, although some people even go for longer loan terms than that. The only tricky thing with car finance is finding the right deal - otherwise, you could end up paying so much more than you would if you had paid cash for a car. 😧

Really, it all comes down to the interest rate. The higher the interest rate, the more you’ll be paying each month on top of the actual loaned money. Of course there are zero interest deals out there, but they are hard to find and usually only applicable to brand new cars. New car finance rates interest rates can often be lower, as an incentive to buy a particular brand or model. But you don't really want to pay over the odds if at all possible, you want to get the best car finance interest rates possible. So, what are classic car financing interest rates? And how do you know if you’ve got the best car finance interest rates? Let’s find out! 🙄

Is Getting a Car on Finance Worth It? 

There are a lot of different ways to finance a car. You could choose to go for PCP (Personal Contract Purchase), HP (Hire Purchase), through a personal loan, or through leasing. All of these options have different characteristics and will give you their own set of benefits. 

Regardless, all kinds of car financing follow the same pattern: spreading out the cost of a car, which can be an expensive purchase, over several months or years. Therefore, car finance is more affordable than buying cash. In fact, 36% of people buying cars take out finance because they wouldn’t be able to afford the purchase otherwise. 

How to Know the Interest Rate of a Car Loan? 

Average car finance interest rates can vary from around 3.5 % to up to 30% - that's a wide range! So as a starting point,  before you can figure out  the interest rate you might be offered to get a specific car you’re dreaming of buying, you’ll have to know the amount of its sale price. This is one of the things that will affect the interest rate. Then, once you have looked at how much deposit to take off the sale price (or the likely value of an old car you wish to trade in) you can calculate how much you want to borrow in total. Putting down a deposit can significantly reduce your monthly payments, because you will need to borrow less, and you might also be offered a better interest rate too! And of course you should also do your research to compare the car finance interest rates offered by lenders. 

In fact, interest rates depend on several different factors. Some of these factors are: 

  • The cost of the car you want to borrow money for
  • Your credit score
  • The length of your loan
  • Which car finance provider you’re signing an agreement with
  • Your deposit or down payment amount
  • Whether you’re trading in your existing car
  • The period over which you wish to repay the loan

Although most car financing companies will be able to give you an idea of the interest rates they offer (called the "representative APR"), the actual interest rate they can offer you personally will take into account the above factors.  And do bear in mind that the numbers could change too. It’s a good practice to ask to be pre-approved for a loan before you actually send in an application.

The reason for this is because when you actually apply for any kind of loan in the UK, the lender will perform a hard credit check and it will be recorded on your credit report. Whereas an offer in principle will just involve a soft credit check.  Even rejected applications are put onto your credit record. Additionally, it will give you the chance to compare different interest rates being offered by different companies and help you to find the best one for you. So do ask for a decision in principle from different lenders and take the time to study different offers. 

When you look at the interest rates on offer, use the "APR" rates offered to you. An APR or Average Percentage Rate, will include all additional charges added on, and it is calculated in exactly the same way by every lender. This is a requirement set down by the FCA or Financial Conduct Authority - all lender must be registered with them to operate. And it's always wise to check a lender is authorised by checking their register.

4 Steps to Finding Out Your Average Car Finance Interest Rate

Before we go through these steps, we just wanted to say that we actually have a car finance calculator which will do all of the maths for you. Just input your information (it takes a few seconds) and let the calculator run its magic! It will tell you how much your monthly repayments will be, according to the amount you want to borrow and over how long, based on a particular interest rate. So you can change the variable to see how much you can afford! 

  1. Find out the exact value of the car you’re looking to buy. Your best bet will be to look through some of the most reputable car marketplaces or your local dealership and write down the exact price for your dream car. If there are several listings, try and make out an average price and write that number down. 
  2. Add on all of the additional fees you’ll be likely to incur, like warranties, registration fees, and road taxes. 
  3. Now take that amount and subtract the amount of cash you have available for a deposit at the moment. Financial experts do recommend always hanging onto some spare cash in case of emergencies, so you could make sure you’re only including a reasonable amount. You can also include any discounts or the value of your trade-in car if any. 
  4. Then you can check your favourite finance provider’s typical loan terms and interest rates. Your total loan payment will be the amount borrowed plus interest. You’ll be able to find out how much you’d pay every month by dividing the total amount by the number of months you’d like your loan term to be. Our car finance calculator will allow you to play around with all of these factors to find your perfect car loan.

Car Finance Interest Rates for Bad Credit

Hey, wait, can you even get car finance if you have bad credit? Yes, you can  get car finance if you have bad credit. Bad credit doesn’t always mean you won’t be able to get a loan, it just means that you might have a harder time finding lenders who will approve you. Unfortunately, it also means that you might have to pay higher interest rates on car finance.  If you're struggling with this it might be worth considering getting a broker to help you.

By the way, you can also get access to car finance even if you are:

  • Self-employed
  • On benefits
  • In an Individual Voluntary Agreement (IVA)
  • Have a County Court Judgment (CCJ)
  • Have been bankrupt in the past


That’s it, you’re now much closer to climbing behind the wheel of your new dream car! You now know the amount you need to set aside for the monthly payments of your car finance, and you can shop around to look for the lowest rates.

However, when looking at how much you can afford to borrow,  remember to factor in car insurance when preparing your budget for your car purchase. The cost may be different from one model to the next. If it’s a new car, then get a quote. The same for the road tax - ask your dealer or check online. And don't forget the cost of fuel and general maintenance and servicing costs.  Now you’ll have a clearer idea of the budget you need to cover all costs involved in owning a car.

If you need any help with car finance or you want to understand it further, please feel free to reach out. Ask us anything! We’ll be glad to guide you along the way. We have lots of informative blogs and videos to support you. Here at Carmoola we are on hand to make your car buying journey a simple, quick and hassle-free one. You can apply directly in our app any time day or night, and get a decision in 60 seconds.  Contact us today! 👍

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